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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

Sagot :

Answer:

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

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

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