Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 20

Reciprocal Method of Support Department Cost Allocation
Refer to Cornerstone Exercise 7.3. Now assume that Valron Company uses the reciprocal method to allocate support department costs.
Required:
1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method.
2. Develop a simultaneous equations system of total costs for the support departments. Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.)
3. 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.)
4. What if the square footage in Fabricating were 13,300 and the square footage in Assembly were 5,700. How would that affect the allocation of support department costs?