Valdosta State University has two colleges, College of Business Administration (COBA) & College of Education (COE)....

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Valdosta State University has two colleges, College of Business Administration (COBA) & College of Education (COE)....

Valdosta State University has two colleges, College of Business Administration (COBA) & College of Education (COE). The two support departments are Physical Plant & the Library. The costs incurred in each of these departments are as follows:

COBA	$ 90,000
COE	$ 70,000
Physical Plant	$120,000
Library	$ 80,000

The actual level of support is as follows:

Supplied by	Used by
	Physical Plant	Library	COBA	COE
Physical Plant		40%	35%	25%
Library	20%		50%	30%

Determine the:

Cost allocated to COBA using the direct method
Cost allocated to COBA using the step-down method (allocating Library first)
Cost allocated to COBA using the reciprocal method

business accounting

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Answer 1

Answer #1

1. Cost allocated to COBA using Direct Method

Let the proportion of Physical Plant be ‘x’ and Library be ‘y’.

Total cost of Physical Plant (x) = $120,000 + 0.2y (20% cost of Library) ——(1)

Total cost of Library (y) = $80,000 + 0.4x (40% cost of physical plant) —— (2)

Substituting (2) in (1),

x = 120,000 + 0.2 (80,000 + 0.4x)

x = 120,000 + 16,000 + 0.08x

x - 0.08 = 136,000

0.92x =136,000

x = 147,826.09
Substituting x=$147,826.09 in (2),

y = 80,000 + 0.4 (147,826.09)

y = 139,130.44

Cost allocated to COBA = 90,000 + 35%x + 50%y

= 90,000 + 35% * 147,836.09 + 50% * 139,130.44

= $211,307.85

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Answer 2

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Valdosta State University has two colleges, College of Business Administration (COBA) & College of Education (COE)....

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