Equipment Maintenance 0.20 0.10 0.05 0.50 0.15 Direct costs (in thousands) in th
ID: 2484398 • Letter: E
Question
Equipment Maintenance 0.20 0.10 0.05 0.50 0.15 Direct costs (in thousands) in the various departments follow: Department Direct Cost s 215 Steam Generation (S1) Electric Generating: Fixed costs (S2) Variable costs (S3) 85 220 144 Equipment Maintenance (54) Production Alpha (P1) Beta (P2) 1,805 1,345 Required: Using the reciprocal method spreadsheet (shown in Exhibit 11 21), show the costs allocated to production for Steamco Corporation. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Department Cost Alpha BetaExplanation / Answer
Reciprocal Method
This Method recognizes all the services provided by any department, including those provided to other service departments.
Steamco Corporation have four service departments (Steam generation,Electric Generating fixed and variable and equipment maintenance) and two producing departments (Alpha and Beta).Now service department cost is allocated to the producing department’s as shown below:
Under this method service department costs are calculated by the simultaneous solution method:
Total service department cost= Direct Cost of service Department + Cost allocated to the service department.
Percentage allocation of services to other departments is as follows:
S1
S2
S3
S4
P1
P2
Steam Generation
Fixed Costs
Variable Costs
Equipment Maintenance
Alpha
Beta
Total
Steam S1
0.4
0.1
0.5
1
Electric Generating
0
Fixed S2
0.1
0.1
0.3
0.5
1
Variable S3
0.1
0.05
0.55
0.3
1
Equipment Maintenance
S4
0.2
0.1
0.05
0.5
0.15
1
0.4
0.1
0.45
0.15
1.45
1.45
4
Now equations are shown as under:
Total SD Costs = DC of the service Department + Cost allocated to the SD
S1= 215 + .1 S2 +.1 S3 + .2 S4
S2 = 85+ .1 S4
S3 = 220 + .4 S1 + .05 S4
S4 = 144+ .1 S2 +.05 S3
Now by substituting the second equation into the fourth equation will give the answer as:
S1 = 215 + .1(85+.1S4) +.1 (220+.4 S1 +.05 S4) +.2 S4
S1 = 215 + 8.5 +.01 S4 + 22 +.04 S1 + .005 S4 + .2S4
S1 = 245.5 +.215 S4 + .04S1
.96S1 = 245.5 + .215 S4
S1 = (245.5+ .215 S4).96
S4 = 144 + .1 (85 + .1S4) + .05 S3
S4 = 144 + 8.5 +.01 S4 + .5S3
.99 S4 = 152.5 + .5 S3
.99S4 = 152. 5 +.5 (220 +.4S1 +.05 S4)
.99 S4 = 152.5 + 110+ .2S1 + .025 S4
.965 S4 = 262.5 + .2 (245.5 +.215 S4)/.96
.965S4 *.96 = 252 + 49.1 +.043 S4
.9264S4 - .043 S4 = 301.1
.8834 S4 = 301.1
S4 = 340
S2= 85+ .1*340
S2= 119
S1
S2
S3
S4
P1
P2
Steam Generation
Fixed Costs
Variable Costs
Equipment Maintenance
Alpha
Beta
Total
Steam S1
0.4
0.1
0.5
1
Electric Generating
0
Fixed S2
0.1
0.1
0.3
0.5
1
Variable S3
0.1
0.05
0.55
0.3
1
Equipment Maintenance
S4
0.2
0.1
0.05
0.5
0.15
1
0.4
0.1
0.45
0.15
1.45
1.45
4
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