The Manes Company has two products. Product 1 is manufactured entirely in Department X. Product 2...
The Manes Company has two products. Product 1 is manufactured entirely in Department X. Product 2 is manufactured entirely in Department Y. To produce these two products, the Manes Company has two service departments: A (a material handling department) and B (a power-generating department). An analysis of the work done by Departments A and B in a typical period is as follows:
|
Used by |
|||||
|
A |
B |
X |
Y |
||
|
Supplied by |
|||||
|
A |
--- |
100 |
250 |
150 |
|
|
B |
500 |
--- |
100 |
400 |
The work done in Department A is measured by the direct labour hours of material-handling time. The work done in Department B is measured by the kilowatt hours of power.
The budgeted costs of the service departments for the coming year are:
Department A Department B
Variable indirect costs $70,000 $10,000
Supervision $10,000 $10,000
Depreciation $20,000 $20,000
Total $100,000 $40,000
REQUIRED:
- What are the allocations of costs of Service
Departments A and B to Production Departments X and Y using the
direct method? (Show all your work)
- What are the allocations of costs of Service Departments A and B to Production Departments X and Y using the reciprocal method? (Show all your work).
Homework Answers
| The Manes Company | ||||
| Direct Method | ||||
| Supplied to | ||||
| Supplied by | Department X | Department Y | ||
| A | (250/(250+150))*$100000= | $ 62,500.00 | (150/250+150))*$100000= | $ 37,500.00 |
| B | (100/(100+400))*$40000= | $ 8,000.00 | (400/(100+400)*$40000= | $ 32,000.00 |
| $ 70,500.00 | $ 69,500.00 | |||
| Reciprocal Method | ||||
| Support Department | Operating Department | |||
| A | B | X | Y | |
| Manufacturing overhead cost | $ 1,00,000 | $ 40,000 | ||
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -1,00,000 | $ 20,000 | $ 50,000 | $ 30,000 |
| $ 60,000 | ||||
| Allocation of departent B cost in the ratio of (500/1000),(100/1000),(400/1000) to A,X and Y | $ 30,000 | $ -60,000 | $ 6,000 | $ 24,000 |
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -30,000 | $ 6,000 | $ 15,000 | $ 9,000 |
| Allocation of departent B cost in the ratio of (500/1000),(100/1000),(400/1000) to A,X and Y | $ 3,000 | $ -6,000 | $ 600 | $ 2,400 |
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -3,000 | $ 600 | $ 1,500 | $ 900 |
| Allocation of departent B cost in the ratio of (500/1000),(100/1000),(400/1000) to A,X and Y | $ 300 | $ -600 | $ 60 | $ 240 |
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -300 | $ 60 | $ 150 | $ 90 |
| Allocation of departent B cost in the ratio of (500/1000),(100/1000),(400/1000) to A,X and Y | $ 30 | $ -60 | $ 6 | $ 24 |
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -30 | $ 6 | $ 15 | $ 9 |
| Allocation of departent B cost in the ratio of (500/1000),(100/1000),(400/1000) to A,X and Y | $ 3 | $ -6 | $ 1 | $ 2 |
| Allocation of departent A cost in the ratio of (100/500),(250/500),(150/500) to B,X and Y | $ -3 | $ - | $ 2 | $ 1 |
| Total budgeted overhead to operating depatment under reciprocal method | $ - | $ - | $ 73,333 | $ 66,666 |
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