We can write the equations for the service department costs as follows:
Substituting the first equation into the second yields
Substituting the value of S2 back into the first equation gives
S1 = $100,000 + 0.30 ($40,000)
S1 = $112,000
We now use the values for S1 ($112,000) and S2 ($40,000) to allocate costs simultaneously to all the departments, as in Exhibit 11.9.
|
Panel A: Proportions |
||||||
|
Service Department |
Department’s Total Costs |
Maintenance |
Cafeteria |
Finishing |
Assembly |
Total |
|
Maintenance |
$112,000 |
–0–% |
20% |
50% |
30% |
100% |
|
Cafeteria |
40,000 |
30 |
–0– |
20 |
50 |
100 |
|
|
$152,000 |
|
|
|
|
|
|
Panel B: Reciprocal Method Allocation |
||||
|
Cost Allocation to |
||||
|
From |
Maintenance |
Cafeteria |
Finishing |
Assembly |
|
Direct costs |
$100,000 |
$17,600 |
$ –0– |
$ –0– |
|
Maintenance |
112,000 |
22,400 |
56,000 |
33,600 |
|
Cafeteria |
12,000 |
40,000 |
8,000 |
20,000 |
|
Total allocated cost |
$ –0– |
$ –0– |
$64,000 |
$53,600 |
|
Production department cost |
|
1,200,000 |
640,000 |
|
|
Total cost |
$1,264,000 |
$693,600 |
||
Exhibit 11.9 Service Department Cost Allocation Computations: Reciprocal Method—Carlyle Coal Company
|
|
A |
B |
C |
D |
E |
F |
G |
|
1 |
|
Service Department |
|
|
|||
|
2 |
|
Information Systems (S1) |
Administration (S2) |
|
|
||
|
3 |
|
Usage |
Percent |
Usage |
Percent |
|
|
|
4 |
Departments |
(hours) |
of Total |
(employees) |
of Total |
|
|
|
5 |
Administration |
100,000 |
50% |
–0– |
0% |
|
|
|
6 |
Information Systems |
–0– |
0 |
2,000 |
20 |
|
|
|
7 |
Hilltop Mine (P1) |
20,000 |
10 |
5,000 |
50 |
|
|
|
8 |
Pacific Mine (P2) |
80,000 |
40 |
3,000 |
30 |
|
|
|
9 |
Total usage |
200,000 |
100% |
10,000 |
100% |
|
|
|
10 |
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
12 |
Reciprocal Method: |
|
Percent Allocable to |
|
|||
|
13 |
|
Department |
Information |
|
Hilltop |
Pacific |
|
|
14 |
|
Total Cost |
Systems |
Administration |
Mine |
Mine |
Total |
|
15 |
Service Department |
|
|
|
|
|
|
|
16 |
Information Systems (S1) |
$2,000,000 |
0.0% |
50.0% |
10.0% |
40.0% |
100.0% |
|
17 |
Administration (S2) |
6,000,000 |
20.0% |
0.0% |
50.0% |
30.0% |
100.0% |
|
18 |
|
$8,000,000 |
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
20 |
|
|
Amount Allocable to |
|
|||
|
21 |
|
|
Information |
|
Hilltop |
Pacific |
|
|
22 |
|
|
Systems |
Administration |
Mine |
Mine |
|
|
23 |
From |
|
|
|
|
|
|
|
24 |
Direct department costs |
|
$ 800,000 |
$ 5,000,000 |
$ –0– |
$ –0– |
|
|
25 |
Information Systems (S1) |
|
(2,000,000) |
1,000,000 |
200,000 |
800,000 |
|
|
26 |
Administration (S2) |
|
1,200,000 |
(6,000,000) |
3,000,000 |
1,800,000 |
|
|
27 |
Total |
|
$ –0– |
$ –0– |
$ 3,200,000 |
$2,600,000 |
|
|
28 |
|
|
|
|
|
|
|