Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4) University Printers
ID: 2553032 • Letter: E
Question
Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4)
University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each.
The following data appear in the company records for the current period:
Required:
Allocate the service department costs using the reciprocal method. (Matrix algebra is not required because there are only two service departments.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)
Maintenance Personnel Printing Developing Machine-hours ? 455 455 2,590 Labor-hours 315 ? 294 1,491 Department direct costs $ 11,000 $ 23,000 $ 25,000 $ 23,000Explanation / Answer
The key to using the reciprocal method is to keep reallocating the two service department (maintenance and personnel) costs until the service departments reach a zero balance. Machine hour percentages--Allocation of Maintenance Costs 455 + 455 + 2,590 = 3,500 total machine hrs Personnel 455 / 3,500 = 13% Printing 455 / 3,500 = 13% Developing 2,590 / 3,500 = 74% Labor hr. percentages--Allocation of Personnel costs 315 + 294 + 1,491 = 2,100 total labor hrs. Maintenance 315 / 2,100 = 15% Printing 294 / 2,100 = 14% Developing 1,491 / 2,100 = 71% Service Maintenance Personnel Printing Developing Costs before allocation 11000 23000 25000 23000 Allocate maintenance costs -11000 1430 1430 8140 (11000X13%) (11000X13%) (11000X74%) 0 24430 Allocate personnel costs 3664.5 -24430 3420.2 17345.3 (24430X15%) (24430X14%) (24430X71%) Allocate maintenance costs -3664.5 476.39 476.39 2711.73 (3664.5X13%) (3664.5X13%) (3664.5X74%) Allocate personnel costs 71.46 -476.39 66.69 338.24 (476.39X15%) (476.39X14%) (476.39X71%) Allocate maintenance costs -71.46 9.29 9.29 52.88 (71.46X13%) (71.46X13%) (71.46X74%) Allocate personnel costs 1.39 -9.29 1.3006 6.5959 (9.29X15%) (9.29X14%) (9.29X71%) Allocate maintenance costs -1.39 0 0 1.39 Total costs 0.00 0.00 30403.87 51596.13
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