Question

Robinson Products Company has two service departments (S1 and S2) and two production departments (P1 and P2). The distribution of each service department’s efforts (in percentages) to the other departments is: From To S1 S2 P1 P2 S1 — 10% 20% ?% S2 10% — ? 30 The direct operating costs of the departments (including both variable and fixed costs) are: S1 $ 180,000 S2 60,000 P1 50,000 P2 120,000

Required: 1. Determine the total cost of P1 and P2 using the direct method.
2. Determine the total cost of P1 and P2 using the step method.
3. Determine the total cost of P1 and P2 using the reciprocal method.

Answer 1

There are three methods to calculate the total cost of P1 and P2: the direct method, the step method, and the reciprocal method. In the direct method, costs are allocated based on given percentages. The step method allocates costs in a step-down approach, while the reciprocal method considers services provided by each department to the others.

Step-by-step explanation:

Total Cost Calculation Using Different Methods:

1. Direct Method:

To calculate the total cost of P1 and P2 using the direct method, we need to allocate the costs of service departments to the production departments based on the given percentages. The total cost of P1 and P2 can be determined by adding the direct costs of P1 and P2 to the allocated portion of the service departments' costs.

2. Step Method:

The step method involves allocating the costs of service departments using a step-down approach. We allocate the costs of S1 first, then allocate the remaining costs of S2 after considering the costs allocated from S1.

3. Reciprocal Method:

The reciprocal method involves considering the services provided by both service departments to each other. We allocate the costs of S1 to all other departments, including S2, based on the percentage of services received. Then, we allocate the costs of S2 to all other departments, including S1, based on the percentage of services received.

Answer 2

To determine the total cost of P1 and P2 using the direct method, we need to allocate the costs of the service departments to the production departments. First, calculate the percentage of effort from S1 to P2 by subtracting the percentages of effort given. Then, use this percentage to calculate the total cost of P1 and P2 by adding the direct operating costs and the allocated costs from the service departments.

Step-by-step explanation:

In order to determine the total cost of P1 and P2 using the direct method, we need to allocate the costs of the service departments to the production departments. The percentage distribution provided gives us the basis for this allocation. Since we are missing the percentage of effort from S1 to P2, we need to calculate it. We can do this by subtracting the percentage of effort from S1 to S2 and the percentage of effort from S2 to P2 from 100%:

• Percentage of effort from S1 to P2 = 100% - percentage of effort from S1 to S2 - percentage of effort from S2 to P2
• Percentage of effort from S1 to P2 = 100% - 10% - 30% = 60%

Now that we have the percentage of effort from S1 to P2, we can calculate the total cost of P1 and P2 using the direct method. The total cost of P1 is the sum of its direct operating cost and the cost allocated from the service departments, S1 and S2:

• Total cost of P1 = Direct operating cost of P1 + (Percentage of effort from S1 to P1 x Direct operating cost of S1) + (Percentage of effort from S2 to P1 x Direct operating cost of S2)
• Total cost of P1 = $50,000 + (20% x $180,000) + (0% x $60,000) = $50,000 + $36,000 + $0 = $86,000

Similarly, the total cost of P2 is the sum of its direct operating cost and the cost allocated from the service departments:

• Total cost of P2 = Direct operating cost of P2 + (Percentage of effort from S1 to P2 x Direct operating cost of S1) + (Percentage of effort from S2 to P2 x Direct operating cost of S2)
• Total cost of P2 = $120,000 + (60% x $180,000) + (30% x $60,000) = $120,000 + $108,000 + $18,000 = $246,000