### Cost Allocation Using the Reciprocal MethodThis section covers the allocation of support service costs using the reciprocal method, which involves the computation of interconnected service department costs. Here's a detailed breakdown:#### Initial Data- **Square Footage Allocation Ratios:** - Power: 0.2 - General Factory: 0 - Pottery: 0.32 - Retail: 0.48#### Cost Allocations Before Allocation:- **Power:** - Direct Costs: $140,400- **General Factory:** - Direct Costs: $162,000- **Pottery:** - Direct Costs: $99,000- **Retail:** - Direct Costs: $57,000#### Allocation Details- **From General Factory:** - To Power: $32,400 - To Pottery: $51,840 - To Retail: $77,760- **From Power:** - To General Factory: -$172,800 - To Pottery: $120,960 - To Retail: $36,288#### Costs After Allocation:- Power: $0- General Factory: $0- Pottery: $271,800- Retail: $171,048### Step 3: Support Service Cost AllocationInstructions: Enter "0" if an amount is zero. Input values to two decimal places.#### Allocation Ratios:- **Machine Hours:** - General Factory: 0.2 - Pottery: 0.56 - Retail: 0.24- **Square Footage:** - Power: 0.2 - Pottery: 0.32 - Retail: 0.48#### Final Cost Allocations:- **Pottery:** - General Factory: $63,359.9 - Power: $100,799 - Direct Costs: $99,000 - Total Cost after Allocation: $263,159- **Retail:** - General Factory: $30,412.7 - Power: $24,191.9 - Direct Costs: $57,000 - Total Cost after Allocation: $111,604### Explanation:This exercise demonstrates how the reciprocal method is used to allocate support service costs seamlessly **Comparison of Methods of Allocation**Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company allocates Power and General Factory department costs to each operating division. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data. Use the rounded values for subsequent calculations.| | Support Departments | | Operating Divisions | ||----------|---------------------|-----------------|---------------------|-------|| | Power | General Factory | Pottery | Retail|| Overhead costs | $140,400 | $162,000 | $99,000 | $57,000|| Machine hours | 2,000 | 2,500 | 7,000 | 3,000 || Square footage| 2,500 | 1,700 | 4,000 | 6,000 |**Instructions:**- **Round all allocation ratios to four significant digits. Round all allocated amounts to the nearest dollar.****Required:**1. Allocate the support service costs using the direct method.*Note: Input to two decimal places.***Allocation Ratios**| | Pottery | Retail ||-----------------|---------|--------|| Proportion of machine hours| 0.70 | 0.30 || Proportion of square footage| 0.40 | 0.60 |**Cost Allocations**| | Pottery | Retail ||-----------------|---------|--------|| Power | $98,280 | $42,120|| General Factory | $64,800 | $97,200|**Instructions Note:**Ensure you verify your work after calculations.

The direct allocation method is a technique for charging the cost of service departments to other…

Comparison of Methods of Allocation Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company allocates Power and General Factory department costs to each operating division. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data: Use the rounded values for subsequent calculations. Support Departments Operating Divisions Pottery Retail Power $140,400 Overhead costs $99,000 $57,000 Machine hours 2,000 7,000 3,000 Square footage 2,500 4,000 6,000 Round all allocation ratios to four significant digits. Round all allocated amounts to the nearest dollar. Required: 1. Allocate the support service costs using the direct method. Note: Input two decimal places. Allocation Ratios Proportion of machine hours Proportion of square footage Cost Allocations Power General Factory Pottery General Factory nnnnn $162,000 2,500 1,700 Pottery 0.70 ✔ 0.40 ✔ Retail 98,280 $ 42,120 64,800 ✔ F 97,200 Retail 0.30 0.60

Comparison of Methods of Allocation Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company allocates Power and General Factory department costs to each operating division. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data: Use the rounded values for subsequent calculations. Support Departments Operating Divisions Pottery Retail Power $140,400 Overhead costs $99,000 $57,000 Machine hours 2,000 7,000 3,000 Square footage 2,500 4,000 6,000 Round all allocation ratios to four significant digits. Round all allocated amounts to the nearest dollar. Required: 1. Allocate the support service costs using the direct method. Note: Input two decimal places. Allocation Ratios Proportion of machine hours Proportion of square footage Cost Allocations Power General Factory Pottery General Factory nnnnn $162,000 2,500 1,700 Pottery 0.70 ✔ 0.40 ✔ Retail 98,280 $ 42,120 64,800 ✔ F 97,200 Retail 0.30 0.60

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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