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    Direct, Step and Reciprocal Method HW

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    Karl Wilson Gonzales
    The document describes four departments - two service departments (factory administration and building & grounds) and two producing departments (machinery and assembly). It provides the overhead costs for each department and additional information on labor hours and square footage. It then describes three methods (direct, step, and reciprocal) to allocate the service department costs to the producing departments.

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    Direct, Step and Reciprocal Method HW

    Uploaded by

    Karl Wilson Gonzales
    121 views6 pages
    The document describes four departments - two service departments (factory administration and building & grounds) and two producing departments (machinery and assembly). It provides the overhead costs for each department and additional information on labor hours and square footage. It then describes three methods (direct, step, and reciprocal) to allocate the service department costs to the producing departments.

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    The document describes four departments - two service departments (factory administration and building & grounds) and two producing departments (machinery and assembly). It provides the overhead costs for each department and additional information on labor hours and square footage. It then describes three methods (direct, step, and reciprocal) to allocate the service department costs to the producing departments.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    121 views6 pages

    Direct, Step and Reciprocal Method HW

    Uploaded by

    Karl Wilson Gonzales
    The document describes four departments - two service departments (factory administration and building & grounds) and two producing departments (machinery and assembly). It provides the overhead costs for each department and additional information on labor hours and square footage. It then describes three methods (direct, step, and reciprocal) to allocate the service department costs to the producing departments.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    ASSIGNMENT # 01

    The Victory Company has two service departments and two producing departments. The following are the overhead
    costs of each department:
    Service Department  
      Factory administration P129,000
      Building and Grounds 105,000
    Producing Department   Allocate the cost of the service departments to
      Machinery 416,000 the producing departments by using the
      Assembly 380,000
    following methods:
    Additional information: a) Direct method
    b) Step method
    Department Estimated total Labor Square Footage
    hours c) Reciprocal method
    Factory administration 2,900 1,200
    Building and Grounds 1,100 1,500
    Machinery 2,000 1,900
    Assembly 1,600 3,200

    The cost of factory administration are allocated based on estimated labor


    hours; building and ground costs are allocated based on square footage.
    The producing department uses machine hours, with 30,000 for
    machinery and 22,800 for assembly.
    DIRECT METHOD

    Department Machinery Assembly Total

    Factory administration 2,000.00 1,600.00 3,600.00

    Building and Grounds 1,900.00 3,200.00 5,100.00

    Department Cost Machinery Assembly

    Factory administration 129,000.00 71,667.00 57,333.00

    Building and Grounds 105,000.00 39,118.00 65,882.00


           

    Total   110,785 123,215


    STEP METHOD

        Allocated costs
    Factory Building and
    Department Cost administration Grounds Machinery Assembly
               
               
    Factory
    administration 129,000.00 - 129,000.00 30,191.00 54,894.00 43,915.00

    Building and Grounds 105,000.00   - 135,191.00 50,365.00 84,826.00


               

    Total       105,259.00 128,741.00


    RECIPROCAL METHOD

    1ST STEP: Determine the Allocation base

      Factory administration Building and Grounds


    Square
      Labor Hours % of total   Footage % of total  
    Factory administration 0    1200 19%1200/5900
    Building and Grounds 1100 23%1100/4700 0  -
    Machinery 2000 43%2000/4700 1900 30%1500/5900
    Assembly 1600 34%1600/4700 3200 51%3200/5900
                 
      4700 100%  6300 100% 

    2nd Step: Set up the cost Formula

    Factory Admin = P129,000+ 19% B


    Building and Grounds = P105,000 + 23%F
    3rd Step: Compute for the new value of each service department

    Factory Admin = P129,000 + .19(P105,000 +.23F)


    F= P129,000 + 19,950 + 0.0437F
    F= P148950+ .0437F Building and Grounds = P105, 000 + .23 (P155,757)
    0.9563F = P148,950 B= P105,000 + P35,824
    F= P155,757 B = P140,824

    4th Step: Allocate the service costs to the producing departments

    Allocation Machinery Assembly


    Factory Administration:
    Machinery: 43% x P155,757 66,976
    Assembly: 34% x P155,757 52,957
    Building & Grounds
    Machinery: 30.% x P140,824 42,247
    Assembly: 51% x 140,824 71,820
    Total Allocated Service Costs 109,223 124,777

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