Question

Reciprocal Method of Support Department Cost Allocation Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs $160,000 $330,000 $114,800 $94,000 Normal activity: Number of employees — 60 80 170 Square footage 1,000 — 5,700 13,300 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Valron Company uses the reciprocal method to allocate support department costs. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note: There may be a "$1" difference due to intermediate rounding.

Answer 1

Support Dept	Human Resources ( HR)		General Factory (GF)
Producing Dept					Fabricating (F)
Direct Cost	160,000.00		330,000.00		114,800.00
Cost Allocation	on the basis of Employees		on the basis of Sq foot
No of Employees	178193	Square Foot	363857
60	General Factory	34489	1000	Human Resources	18193
80	Fabricating	45985	5700	Fabricating	103699
170	Assembly	97719	13,300	Assembly	241965
310	0.19	178193	20000	0.05	363857
	19% to GF			5 % to HR
HR =	160000 + 0.05 GF
GF =	330000 + 0.19HR
HR =	160000 + 0.05(330000 +0.19HR)
	160000 + 16500 + 0.0095HR
1HR - 0.0095HR =	176500
HR =	176500	0.9905
	178193
GF =	330000 +0.19(HR)
	330000 + 0.19(178193)
GF =	363857
	Human Resources Cost allocated to
	Fabricating	45985
	Assembly	97719
	General Factory Cost allocated to
	Fabricating	103699
	Assembly	241965