CHAPTER 7
Allocating Costs of Support Departments and Joint Products
COLLABORATIVE LEARNING EXERCISE SOLUTION
1. a. Direct method
Packaging
Cooking and Freezing
Machine hours ………………………….. 0.6667 0.3333
Kilowatt-hours …………………………. 0.5556 0.4444
Maintenance:
(0.6667 × $340,000) …………….. $ 226,678
Cooking: $412,798/40,000 = $10.32 per machine hour
Prime costs ……………………………………………….. $ 16.00
b. Sequential method:
Packaging
and
Maintenance Power Cooking Freezing
Machine hours ………………….. — 0.4000 0.4000 0.2000
Kilowatt hours ………………….. — — 0.5556 0.4444
7–37 Continued
Cooking: $397,682/40,000 = $9.94 per machine hour
Packaging and freezing: $272,318/30,000 = $9.08 per direct labor hour
Prime costs ……………………………………………….. $ 16.00
c. Reciprocal method:
Packaging
and
Maintenance Power Cooking Freezing
Machine hours ………………….. — 0.4 0.4 0.2
Kilowatt-hours …………………. 0.1 — 0.5 0.4
M = $340,000 + 0.1P P = $200,000 + 0.4M
Packaging
Total Cooking and Freezing
From:
Maintenance: $375,000
(0.4 × $375,000) ……………………. $ 150,000
Packaging and freezing: $270,000/30,000 = $9 per direct labor hour
Prime cost…………………………………………………. $ 16.00
7–37 Concluded
2. No, the direct method did not produce a winning bid. The direct method fails to consider the in-
terrelationships of the support centers and, as a consequence, assigns too much of the support