Question

Robinson Products Company has two service departments (S1 and S2) and two production departments (P1 and P2). The distribution of each service department's efforts (in percentages) to the other departments is: To From S1 S2 P1 P2 S1 78 -20% 30% S2 20% 2 40 The direct operating costs of the departments (including both variable and fixed costs) are: Si $255,000 85,000 63,000 P2 185,000 S2 P1 Required: 1. Determine the total cost of P1 and P2 using the direct method. 2. Determine the total cost of P1 and P2 using the step method. 3. Determine the total cost of P1 and P2 using the reciprocal method Complete this question by entering your answers in the tabs below

Answer 1

	Distribution table
	To
From	S1	S2	P1	P2
S1	-	20%	30%	50%
S2	20%	-	40%	40%

1)	Direct Method
	Under this method, the cost of service dept. are directly apportioned
	to production depts. , without taking into consideration any service
	from one service dept. to another service dept.
	Particulars			P1	P2	S1	S2
	Total Costs			$    63,000.00	$ 185,000.00	$    255,000.00	$   85,000.00
	Distribution of :
	S1			$    95,625.00	$ 159,375.00	$ (255,000.00)
	S2			$    42,500.00	$    42,500.00		$ (85,000.00)
	Total			$ 201,125.00	$ 386,875.00	$                     -	$                   -

2)	Step Method
	In this method, the cost of most serviceable dept. is first apportioned to
	other service dept. and production depts. The next service dept. is taken
	up and its cost is apportioned and this process goes on till the cost of last
	service dept. is apportioned. The cost of last service dept. among production
	dept. only.
	Particulars			P1	P2	S1	S2
	Total Costs			$    63,000.00	$ 185,000.00	$    255,000.00	$      85,000.00
	Distribution of:
	S1			$    76,500.00	$ 127,500.00	$ (255,000.00)	$      51,000.00
				$ 139,500.00	$ 312,500.00	$                     -	$    136,000.00
	S2			$    54,400.00	$    54,400.00	$      27,200.00	$ (136,000.00)
				$ 193,900.00	$ 366,900.00	$      27,200.00	$                     -
	S1			$       8,160.00	$    13,600.00	$    (27,200.00)	$        5,440.00
				$ 202,060.00	$ 380,500.00	$                     -	$        5,440.00
	S2			$       2,176.00	$       2,176.00	$        1,088.00	$      (5,440.00)
				$ 204,236.00	$ 382,676.00	$        1,088.00	$                     -
	S1			$          326.40	$          544.00	$      (1,088.00)	$            217.60
				$ 204,562.40	$ 383,220.00	$                     -	$            217.60
	S2			$          108.80	$          108.80		$          (217.60)
				$ 204,671.20	$ 383,328.80	$                     -	$                     -

3)	Reciprocal Method
	This method gives cognizance to the fact that where there are two
	or more service depts, they may render services to each other, and
	therefore these inter-departmental services are to be given due weight
	in distributing the expenses of service depts. There are three methods
	available to deal with inter service departmental transfer:
	1) Simultaneous equation method (I'll be using this one)
	2) Repeated Distribution method
	3)Trial and error method
	Let the total cost of Dept. S1 be "x" and that of S2 be "y"
	Therefore, x = $ 255,000 + 20% of y				y = $ 85,000 + 20% of x
	or,	x = $ 255,000 + 0.2y…(1)			or, y = $ 85,000 + 0.2x…(2)
		Now, putting the value of "y" in (1), we get
		x = $ 255,000 + 0.2 ( $ 85,000 + 0.2x)
		x= $ 255,000 + $ 17000 + 0.04 x
		0.96 x = $ 272,000
		x = $ 283,333
	and	y = $ 85,000 + 0.2 ( $ 283,333)
		y = $ 141,666
	Particulars			P1	P2	S1	S2
	Total Costs			$    63,000.00	$ 185,000.00	$    255,000.00	$     85,000.00
	Distribution of:
	S1			$    84,999.90	$ 141,666.50	$ (283,333.00)	$     56,666.60
				$ 147,999.90	$ 326,666.50	$    (28,333.00)	$   141,666.60
	S2			$    56,666.40	$    56,666.40	$      28,333.20	$ (141,666.00)
	Total			$ 204,666.30	$ 383,332.90	$                     -	$                     -