Question

Support Department Cost Allocation—Reciprocal Services Method

Blue Africa Inc. produces laptops and desktop computers. The company’s production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the company’s production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is $267,000. The total cost of the Cafeteria Department is $240,000. The number of employees and the square footage in each department are as follows:
Employees Square Feet
Security Department 10 550
Cafeteria Department 28 2,400
Laser Department 40 4,800
Forming Department 50 800

Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and to each of the production departments.

Answer 1

The reciprocal services method is used to allocate support department costs based on the services provided to other departments. The total costs from the Security Department that should be allocated to the Cafeteria Department is $9,000.

Step-by-step explanation:

The reciprocal services method is used to allocate support department costs based on the services provided to other departments. In this case, the Cafeteria and Security departments support the production departments of Blue Africa Inc. To allocate the total costs from the Security Department to the Cafeteria Department, we need to calculate their reciprocal service percentages.

The reciprocal service percentage for the Security Department is calculated as the Security Department cost divided by the total department costs (Security Department cost + Cafeteria Department cost). The reciprocal service percentage for the Cafeteria Department is calculated as the Cafeteria Department cost divided by the total department costs.

Once the reciprocal service percentages are calculated, we can allocate the total costs from the Security Department to the Cafeteria Department by multiplying the reciprocal service percentage for the Security Department by the total cost of the Security Department. The total costs from the Security Department allocated to the Cafeteria Department should be $9,000.