Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, InformationTechnology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded:SupplyingDepartmentTransactionsITOperationsDirect costFrom:TransactionsITOperationsTransactionsTotal010%50%$ 340,000ITUsing DepartmentOperationsCosts Operations$ 760,000 $ 228,000 $1,828,0001,536,000000$760,000Allocated to:Transactions30%0$ 1,600,000RetailRequired:a. Allocate the service department costs to the two operating departments using the reciprocal method.70%30%10%$ 3,800,000CommercialRetail76,000 $ 228,000 $ 228,000914,000182,800731,2001,075,200460,800$ 1,486,000 $ 1,420,000Commercial30%30%40%$ 2,350,000

It means allocating the service department cost to operating departmentIt can be done through…

Answered: a. Allocate the service department…

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Accounting

a. Allocate the service department costs to the two operating departments using the reciprocal method.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information
Technology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded:
Supplying
Department
Transactions
IT
Operations
Direct cost
From:
Transactions
IT
Operations
Transactions
Total
0
10%
50%
$ 340,000
IT
Using Department
Operations
Costs Operations
$ 760,000 $ 228,000 $
1,828,000
1,536,000
0
0
0
$760,000
Allocated to:
Transactions
30%
0
$ 1,600,000
Retail
Required:
a. Allocate the service department costs to the two operating departments using the reciprocal method.
70%
30%
10%
$ 3,800,000
Commercial
Retail
76,000 $ 228,000 $ 228,000
914,000
182,800
731,200
1,075,200
460,800
$ 1,486,000 $ 1,420,000
Commercial
30%
30%
40%
$ 2,350,000

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