Question

The following information relates to Osceola Corporation for the past accounting period. Direct costs Service Dept...

The following information relates to Osceola Corporation for the past accounting period.

Direct costs
Service Dept A $ 99,600
Service Dept B 70,200
Producing Dept C 19,400
Producing Dept D 31,000

  

Proportion of service by A to:
B 10 %
C 60 %
D 30 %

  

Proportion of service by B to:
A 30 %
C 20 %
D 50 %

    
Using the simultaneous solution method, Department B's cost allocated to Department C is:

Multiple Choice

  • $15,699

  • $35,928

  • $16,528

  • $10,301

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Answer #1
Cost of service department A after receiving cost from B. 99600+ 0.30*B
A = 99,600 + 0.30*B …...eqn(i)
Cost of service department B after receiving cost from A 70200+ 0.10*A
B = 70,200+0.10*A …..eqn(ii)
Replacing value of B in eqn (i)
A = 99600 + 0.30(70,200+0.10*A)
A = 99600 + 21060 + 0.03*A
0.97 A = 120,660
A = 124391.75
A = 99,600 + 0.30*B
124391.75-99600 = 0.30*B
24791.75 = 0.30 *B
B = 82639.16
Cost of B allocated to Department C = 82639.17*20% = 16,528
hence, option Third is correct i.e. $ 16,528.

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