Question

PART ONE:

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Design			Support			Assembly			Finishing
Design	0	%		20	%		10	%		70	%
Support	10	%		0	%		40	%		50	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Design	$	130,000
Engineering Support	$	270,000
Assembly	$	490,000
Finishing	$	780,000

The total cost accumulated in the finishing department using the reciprocal method is(calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

• $1,925,714.

• $571,429.

• $626,837.

• $1,098,571.

• $1,043,163.

PART TWO:

O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A and B. Materials are added at the beginning of the process in Department B. O'Leary uses the weighted-average method. Conversion costs for Department B were 40% complete as to the 5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 7,000 units in the ending work-in-process inventory. 10,000 units were completed and transferred out of Department B during October. An analysis of the costs relating to work-in-process inventories and production activity in Department B for October follows:

	Transferred- in Costs			Materials Costs			Conversion Costs
WIP, October 1:	$	10,000		$	3,000		$	1,000
Costs added in October		24,000			5,500			4,400

The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was:

• $2.75.

• $2.80.

• $2.85.

• $2.90.

• $2.95.

Answer 1

reciprocal method allocates cost to both support and production department

we will find out two equations

suppose the total cost of design is X

Suppose the total cost of engineering support is Y

X= $130,000 + 0.10Y..........1

Y = $270,000+ 0.20X............2

substituting (2) in (1)

X= $130,000 + 0.10($270,000+0.20X)

X= $130,000+27,000+0.02X

0.98X=$157,000

X=160,204

Y = $270,000+0.20*160,204

=$302,041

	Design	Engineering	Assembly	Finishing
cost	$130,000	$270,000	$490,000	$780,000
Cost allocation of design	($160,204)	$32,041[$160,204*20%]	$16,020[$160,204*10%]	$112,143[$160,204*70%]
cost allocation of engineering	$30,204[$302,041*10%]	($302,041)	$20,816[$302,041*40%]	$151,020[$302,041*50%]
				$1,043,163 [$780,000+112,143+151,020]

Answer : - $1,043,163

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