Question

Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:

				Proportion of Services Used by
Department	Direct Costs			Maintenance		Cafeteria		Machining		Assembly
Machining	$	140,000
Assembly		65,000
Maintenance		48,000		—		0.1		0.5		0.4
Cafeteria		35,000		0.7		—		0.2		0.1

Required:

Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

Let total maintenance department cost be M

Let total Cafeteria department cost be C

M= 48000+0.7*C

C= 35000+0.1* M

C = 35000+0.1(48000+0.7C)

C = 35000+4800+0.07C

0.93C = 39800

C=42795.7

M =48000+0.7*C

M =48000+0.7*42795.7

M =77956.99

Total maintenance department cost (M)=	77956.99
Total Cafeteria department cost (C ) =	42795.70

Total Cost with Cost Allocation
	Maintenance	Cafeteria	Machining	Assembly
Costs	48000	35000	140000	65000
Allocation :
Maintenance	-77956.99	7795.70	38978.49	31182.80
		(-77956.99*0.1)	(-77956.99*0.5)	(-77956.99*0.4)
Cafeteria	29956.99	-42795.70	8559.14	4279.57
	(42796.70*0.7)		(42796.70*0.2)	(42796.70*0.1)
Net Cost	0.00	0.00	187537.63	100462.37