University Printers has two service departments (Maintenance and Personnel) and
ID: 2572898 • Letter: U
Question
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 Maintenance Personnel Printing Developing Machine-hours Labor-hours Department direct costs 665 272 $26,000 2,170 1,105 $18,000 665 323 $10,000 $23,000 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.) Cost Allocation To: Maintenance Personnel Printing Developing From: 10,000 S 23,000 Service department costs Maintenance Personnel Total 10,000 $ 23,000Explanation / Answer
Setting up the equation
Maintenance dept (M)
= $10,000 + 323/1700 of P
= $10,000 + 0.19 P
Personal dept (P)
= $23,000 + 665/3500 of M
= $23,000 + 0.19 M
Putting the value of P in M
M
= $10,000 + 0.19 ($23,000 + 0.19 M)
= $10,000 + $4,370 + 0.0361 M
0.9639 M
= $14,370
M
$14,908
P
= $23,000 + 0.19 M
= $23,000 + 2,833
$25,833
Maintenance
Personal
Printing
Developing
Departmental direct costs
$10,000
$23,000
$26,000
$18,000
Maintenance
-$14,908
$2,833
$2,833
$9,243
Personal
$4,908
-$25,833
$4,133
$16,791
Total
$0
$0
$32,966
$44,035
Setting up the equation
Maintenance dept (M)
= $10,000 + 323/1700 of P
= $10,000 + 0.19 P
Personal dept (P)
= $23,000 + 665/3500 of M
= $23,000 + 0.19 M
Putting the value of P in M
M
= $10,000 + 0.19 ($23,000 + 0.19 M)
= $10,000 + $4,370 + 0.0361 M
0.9639 M
= $14,370
M
$14,908
P
= $23,000 + 0.19 M
= $23,000 + 2,833
$25,833
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