**Support Department Cost Allocation—Reciprocal Services Method**Davis Snowflake & Co. produces Christmas stockings in its Cutting and Sewing departments. The Maintenance and Security departments support the production of the stockings. Costs from the Maintenance Department are allocated based on machine hours, and costs from the Security Department are allocated based on asset value. Information about each department is provided in the following table:| | Maintenance Department | Security Department | Cutting Department | Sewing Department ||-------------------------------|------------------------|---------------------|--------------------|-------------------|| **Machine hours** | 800 | 2,000 | 6,800 | 11,200 || **Asset value** | \$2,000 | \$1,450 | \$3,000 | \$5,000 || **Department cost** | \$33,120 | \$14,720 | \$67,000 | \$81,000 |**Task:**Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method.**Solution Space:**- Cutting Department total costs: $ ______- Sewing Department total costs: $ ______This exercise involves applying the reciprocal services method to allocate support department costs to production departments based on machine hours and asset values.

The reciprocal technique allocates expenditures incurred by service departments to another department using simultaneous equations; assignments are also made among service departments. This strategy produces a precise cost distribution.Workings: Calculations:Workings: Let the total overheads of Maintenance department be 'X' and that of Security Department be 'Y'. Total Overheads of Maintenance Dept.=(Individual Cost before Allocation)+(20% of Total Cost of Service Dept.) X=$33,120+(Y×20%) Total overheads of Security Dept.=(Individual Cost before Allocation)+(10% of Total Cost of Maintenance Dept.) Y=$14,720+( X×10%) Now, X=$33,120+(($14,720+( X×10%))×20%)X=$33,120+$2,944+0.02X0.98X=$36,064X=$36,0640.98X=$36,800 Y=$14,720+(X×10%)Y=$14,720+($36,800×10%)Y=$14,720+$3,680Y=$18,400Workings:Answer:

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Support department cost allocation-reciprocal services method Davis Snowflake & Co. produces Christmas stockings in its Cutting and Sewing departments. The Maintenance and Security departments support the production of the stockings. Costs from the Maintenance Department are allocated based on machine hours, and costs from the Security Department are allocated based on asset value. Information about each department is provi in the following table: Maintenance Security Cutting Sewing Department Department Department Department Machine hours 800 2,000 6,800 11,200 Asset value $2,000 $1,450 $3,000 $5,000 Department cost $33,120 $14,720 $67,000 $81,000 Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method. Cutting Sewing Department Department Production departments' total costs

Support department cost allocation-reciprocal services method Davis Snowflake & Co. produces Christmas stockings in its Cutting and Sewing departments. The Maintenance and Security departments support the production of the stockings. Costs from the Maintenance Department are allocated based on machine hours, and costs from the Security Department are allocated based on asset value. Information about each department is provi in the following table: Maintenance Security Cutting Sewing Department Department Department Department Machine hours 800 2,000 6,800 11,200 Asset value $2,000 $1,450 $3,000 $5,000 Department cost $33,120 $14,720 $67,000 $81,000 Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method. Cutting Sewing Department Department Production departments' total costs

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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