Question

The following information relates to Osceola Corporation for the past accounting period. Direct costs Service Department A$80,000 Service Department B 60,000 Producing Department C 15,000 Producing Department D 20,000 Proportion of service by A to: B10% C60% D30% Proportion of service by B to: A30% C20% D50% Using the reciprocal (simultaneous solution) method, Department B's cost allocated to Department C (rounded to the nearest whole dollar) is: Multiple Choice

Answer 1

To allocate the cost of Department B to Department C using the reciprocal method, we first calculate the reciprocal of the proportion of service provided by Department A to Department B. Then, we multiply the reciprocal ratio by the cost of Department B to get the cost allocated to Department B.

Step-by-step explanation:

To allocate the cost of Department B to Department C using the reciprocal method, we need to calculate the reciprocal ratios of service.

To find the reciprocal of the proportion of service provided by Department A to Department B, we divide 1 by 0.10 (B's proportion to A) to get 10.

Next, we multiply the reciprocal ratio of Department A to B (10) by the cost of Department B ($60,000) to get the cost allocated to Department B, which is $600,000.

Answer 2

Department B's cost allocated to Department C = $14,021

Step-by-step explanation:

Let A and B represents the total costs of Departments A and B repectively. We therefore have:

A = 80,000 + 0.3B ……………………. (1)

B = 60,000 + 0.1A ………………...... (2)

Substituting equation (1) into (2) and solve for B, we have:

B = 60,000 + 0.1(80,000 + B0.3)

B = 60,000 + 8,000 + 0.03B

B - 0.03B = 68,000

0.97B = 68,000

B = 68,000 / 0.97

B = 70,103

This implies that the total cost of B is $70,103.

Therefore, we have:

Department B's cost allocated to Department C = B * Proportion of service by B to C = $70,103 * 20% = $14,021