Question

Q 2       Fahd Compagny is allocating support department costs to operating departments. Actual support costs and allocation base information for the two support departments is shown below. The costs of support department S1 are allocated based on the number of service calls made, and the costs of support department S2 are allocated based on square feet.

                                      Support Departments          Operating Departments

                                        S1                    S2                    O1                                        O2

Support costs                $80,000            $28,000                    ----                                         ----

Allocation bases:                                                                                                                      

Service calls                      2                      4                                      10                      5

Square feet                 6,000                3,000                                23,000              18,000

            Using the reciprocal method:

a.   Determine the equations related to the reciprocal exchange of service between S1 and S2 costs

b.   Determine the amount of cost allocated from S2 to S1

c.   Determine the amount of cost allocated from S1 to O2

Answer 1

	S1	S2	O1	O2
Support Cost	80000	28000
Service Calls	2	4	10	5
Square Foot	6000	3000	23000	18000
Total Service Calls except S1	19
Total Square Feet Except S2	47000
Equation:
S1=	80000+6000/47000(S2)
S2=	28000+4/19(S1)
S1=	80000+6000/47000(28000+4/19(S1))
S1=	80000+0.128(28000+0.2105S1)
S1=	80000+3584+0.0269S1
S1-0.0269S1=	83584
0.9731S1=	83584
S1=	83584/0.9731
S1=	85895
S2=	28000+4/19(S1)
S2=	28000+4/19(85895)
S2=	46080
Cost Allocated From S2 to S1	85895-80000=5895
Cost Allocated From S1 to S2	46080-28000=18080