Q 2 Fahd Compagny is allocating support department costs to operating department
ID: 2517700 • Letter: Q
Question
Q 2 Fahd Compagny is allocating support department costs to operating departments. Actual support costs and allocation base information for the two support departments is shown below. The costs of support department S1 are allocated based on the number of service calls made, and the costs of support department S2 are allocated based on square feet.
Support Departments Operating Departments
S1 S2 O1 O2
Support costs $80,000 $28,000 ---- ----
Allocation bases:
Service calls 2 4 10 5
Square feet 6,000 3,000 23,000 18,000
Using the reciprocal method:
a. Determine the equations related to the reciprocal exchange of service between S1 and S2 costs
b. Determine the amount of cost allocated from S2 to S1
c. Determine the amount of cost allocated from S1 to O2
Explanation / Answer
S1 S2 O1 O2 Support Cost 80000 28000 Service Calls 2 4 10 5 Square Foot 6000 3000 23000 18000 Total Service Calls except S1 19 Total Square Feet Except S2 47000 Equation: S1= 80000+6000/47000(S2) S2= 28000+4/19(S1) S1= 80000+6000/47000(28000+4/19(S1)) S1= 80000+0.128(28000+0.2105S1) S1= 80000+3584+0.0269S1 S1-0.0269S1= 83584 0.9731S1= 83584 S1= 83584/0.9731 S1= 85895 S2= 28000+4/19(S1) S2= 28000+4/19(85895) S2= 46080 Cost Allocated From S2 to S1 85895-80000=5895 Cost Allocated From S1 to S2 46080-28000=18080
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