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Reciprocal Method of Support Department Cost Allocation Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Direct costs Normal activity: Support Departments Human Resources $170,000 General Factory $340,000 1,500 Producing Departments 60 Number of employees Square footage 14,000 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Chekov Company uses the reciprocal method to allocate support department costs. Fabricating Assembly $114,800 $95,000 45 80 6,000

Reciprocal Method of Support Department Cost Allocation Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Direct costs Normal activity: Support Departments Human Resources $170,000 General Factory $340,000 1,500 Producing Departments 60 Number of employees Square footage 14,000 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Chekov Company uses the reciprocal method to allocate support department costs. Fabricating Assembly $114,800 $95,000 45 80 6,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Reciprocal Method of Support Department Cost Allocation.

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### Instructions for Allocating Department Costs Using the Reciprocal Method #### Required Steps: 1. **Calculation of Allocation Ratios:** - **Objective:** Calculate the allocation ratios (rounded to four significant digits) for the four departments. - **Instructions:** Use the reciprocal method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. 2. **Development of Simultaneous Equations:** - **Objective:** Develop a system of simultaneous equations for the total costs of the support departments. - **Instructions:** Use the numbers from the allocation ratios. Round answers to four decimal places. Round all intermediate calculations to six decimal places, except the answers computed in step 1. - Human Resources (HR) Equation: \[ \text{HR} = \_\_\_\_\_ + (\text{GF}) \] - General Factory (GF) Equation: \[ \text{GF} = \_\_\_\_\_ + (\text{HR}) \] - **Task:** Solve for the total reciprocated costs of each support department. Round the total costs to the nearest dollar. - Total Cost for Human Resources (HR): \[ \_\_\_\_\_ \] - Total Cost for General Factory (GF): \[ \_\_\_\_\_ \] 3. **Cost Allocation Using Reciprocated Costs:** - **Objective:** Allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. - **Instructions:** Use the reciprocal method. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note that there may be a "$1" difference due to intermediate rounding. #### Allocation Table: - **Support Departments:** - Human Resources - General Factory - **Producing Departments:** - Fabricating - Assembly - **Costs to Allocate:** - **Direct Costs:** - Human Resources: \( \_\_\_\_\_ \) - General Factory: \( \_\_\_\_\_ \) - **Allocate:** - Human Resources - General Factory - **Total After Allocation:** - Fabricating: \( \_\_\_\_\_ \) - Assembly: \( \_\_\_\_\_ \) #### Diagram
Transcribed Image Text:### Instructions for Allocating Department Costs Using the Reciprocal Method #### Required Steps: 1. **Calculation of Allocation Ratios:** - **Objective:** Calculate the allocation ratios (rounded to four significant digits) for the four departments. - **Instructions:** Use the reciprocal method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. 2. **Development of Simultaneous Equations:** - **Objective:** Develop a system of simultaneous equations for the total costs of the support departments. - **Instructions:** Use the numbers from the allocation ratios. Round answers to four decimal places. Round all intermediate calculations to six decimal places, except the answers computed in step 1. - Human Resources (HR) Equation: \[ \text{HR} = \_\_\_\_\_ + (\text{GF}) \] - General Factory (GF) Equation: \[ \text{GF} = \_\_\_\_\_ + (\text{HR}) \] - **Task:** Solve for the total reciprocated costs of each support department. Round the total costs to the nearest dollar. - Total Cost for Human Resources (HR): \[ \_\_\_\_\_ \] - Total Cost for General Factory (GF): \[ \_\_\_\_\_ \] 3. **Cost Allocation Using Reciprocated Costs:** - **Objective:** Allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. - **Instructions:** Use the reciprocal method. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note that there may be a "$1" difference due to intermediate rounding. #### Allocation Table: - **Support Departments:** - Human Resources - General Factory - **Producing Departments:** - Fabricating - Assembly - **Costs to Allocate:** - **Direct Costs:** - Human Resources: \( \_\_\_\_\_ \) - General Factory: \( \_\_\_\_\_ \) - **Allocate:** - Human Resources - General Factory - **Total After Allocation:** - Fabricating: \( \_\_\_\_\_ \) - Assembly: \( \_\_\_\_\_ \) #### Diagram
**Reciprocal Method of Support Department Cost Allocation** Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. ### Support Departments and Producing Departments - **Direct Costs**: - Human Resources: $170,000 - General Factory: $340,000 - Fabricating: $114,800 - Assembly: $95,000 ### Normal Activity: - **Number of Employees**: - General Factory: 60 - Fabricating: 45 - Assembly: 80 - **Square Footage**: - Human Resources: 1,500 - General Factory: 6,000 - Fabricating: 14,000 The costs of the Human Resources Department are allocated based on the number of employees, while the costs of General Factory are allocated based on square footage. ### Objective Now assume that Chekov Company uses the reciprocal method to allocate support department costs. **Required:** 1. **Calculate the Allocation Ratios**: - Round to four significant digits for the four departments using the reciprocal method. - If an amount is zero, enter "0". - Use rounded values for subsequent calculations. 2. **Proportion of Driver Used by:** - **Table For Input**: | | Human Resources | General Factory | Fabricating | Assembly | |------------------|-----------------|-----------------|-------------|----------| | Human Resources | | | | | | General Factory | | | | | 3. **Develop a Simultaneous Equations System**: - Solve for total costs for the support departments. - Round answers to four decimal places for calculations. - Use these numbers for subsequent calculations. - If necessary, round all other intermediate calculations to six decimal places. **Equations**: - Human Resources (HR) = $________ + _______ (GF) - General Factory (GF) = $________ + _______ (HR) **Solution**: - Solve for the total reciprocated costs of each support department. - Round reciprocated total costs to the nearest dollar. **Final Reciprocated Costs**: - Human Resources (HR): $________ - General Factory (GF): $________
Transcribed Image Text:**Reciprocal Method of Support Department Cost Allocation** Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. ### Support Departments and Producing Departments - **Direct Costs**: - Human Resources: $170,000 - General Factory: $340,000 - Fabricating: $114,800 - Assembly: $95,000 ### Normal Activity: - **Number of Employees**: - General Factory: 60 - Fabricating: 45 - Assembly: 80 - **Square Footage**: - Human Resources: 1,500 - General Factory: 6,000 - Fabricating: 14,000 The costs of the Human Resources Department are allocated based on the number of employees, while the costs of General Factory are allocated based on square footage. ### Objective Now assume that Chekov Company uses the reciprocal method to allocate support department costs. **Required:** 1. **Calculate the Allocation Ratios**: - Round to four significant digits for the four departments using the reciprocal method. - If an amount is zero, enter "0". - Use rounded values for subsequent calculations. 2. **Proportion of Driver Used by:** - **Table For Input**: | | Human Resources | General Factory | Fabricating | Assembly | |------------------|-----------------|-----------------|-------------|----------| | Human Resources | | | | | | General Factory | | | | | 3. **Develop a Simultaneous Equations System**: - Solve for total costs for the support departments. - Round answers to four decimal places for calculations. - Use these numbers for subsequent calculations. - If necessary, round all other intermediate calculations to six decimal places. **Equations**: - Human Resources (HR) = $________ + _______ (GF) - General Factory (GF) = $________ + _______ (HR) **Solution**: - Solve for the total reciprocated costs of each support department. - Round reciprocated total costs to the nearest dollar. **Final Reciprocated Costs**: - Human Resources (HR): $________ - General Factory (GF): $________
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In this question the student has specifically asked part 3 of the question regarding usage of reciprocal method.

The reciprocal method for cost allocation of support departments makes use of simultaneous equations to allocate costs incurred by service departments to other main departments.

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Now assume that Chekov Company uses the reciprocal method to allocate support department costs. Required: 1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. Proportion of Driver Used by Fabricating Human Resources (HR) General Factory (GF) Human Resources 95,000 X General Factory 95,000 X 2. Develop a simultaneous equations system of total costs for the support departments. If required, round your answers to four decimal places. Use these numbers for subsequent calculations. If required, round all other intermediate calculations to six decimal places, except the answers computed in requirement 1. $ Direct costs Allocate: Human Resources Human Resources General Factory Total after allocation = $ 170,000 X 170,000 X 150,000 X Human Resources ox 340,000 ✓ (HR) Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.) Human Resources (HR) 198,240 X 403,436 X General Factory (GF) 3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note: There may be a "$1" difference due to intermediate rounding. 0 X General Factory Support Departments 0 X 0 + ✓ + 340,000 X 340,000 X 0.07 X (GF) 0.32 X General Factory 0 X 0 X 0 X 114,800 X 114,800 X 0 ✓ $ Assembly Producing Departments Fabricating 114,800 ✓ 96,825 X 55,507 X 267,132 X Assembly 95,000 ✓ 173,477 X 128,856 X 397,333 X
Transcribed Image Text:Now assume that Chekov Company uses the reciprocal method to allocate support department costs. Required: 1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. Proportion of Driver Used by Fabricating Human Resources (HR) General Factory (GF) Human Resources 95,000 X General Factory 95,000 X 2. Develop a simultaneous equations system of total costs for the support departments. If required, round your answers to four decimal places. Use these numbers for subsequent calculations. If required, round all other intermediate calculations to six decimal places, except the answers computed in requirement 1. $ Direct costs Allocate: Human Resources Human Resources General Factory Total after allocation = $ 170,000 X 170,000 X 150,000 X Human Resources ox 340,000 ✓ (HR) Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.) Human Resources (HR) 198,240 X 403,436 X General Factory (GF) 3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note: There may be a "$1" difference due to intermediate rounding. 0 X General Factory Support Departments 0 X 0 + ✓ + 340,000 X 340,000 X 0.07 X (GF) 0.32 X General Factory 0 X 0 X 0 X 114,800 X 114,800 X 0 ✓ $ Assembly Producing Departments Fabricating 114,800 ✓ 96,825 X 55,507 X 267,132 X Assembly 95,000 ✓ 173,477 X 128,856 X 397,333 X
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