The following information relates to Ray Corporation for the past accounting per

ID: 2484689 • Letter: T

Question

The following information relates to Ray Corporation for the past accounting period.

Proportion of service by A to: Proportion of service by B to:

B 10% A 30%

C 60% C 20%

D 30% D 50%

Using the simultaneous solution method, Department A's cost allocated to Department C is:

a) $55,200.

b) $60,000.

c) $70,268.

d) $113,600.

Direct Costs Service Dept. A $92,000 Service Dept. B $72,000 Producing Dept. C $27,000 Producing Dept. D $32,000

Let the Cost of Department A after reallocation of direct costs be A and that of Department B be B.

Hence,

A = $92,000 + 0.30B

B = $72,000 + 0.10A

B = $72,000 + 0.10($92,000 + 0.30B)

B = $72,000 + $9,200 + 0.03B

0.97B = $81,200

B = $81,200/0.97 = $83,711

A = $92,000 + 0.30*$83,711 = $117,113

Cost of Department A after reallocation is $117,113

Cost of department A allocated to Department C = 0.60 * $117,113 = $70,268

Hence, Answer is c) $70,268

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