Question:
Cost Allocation: Step and Reciprocal Methods
Farmington Components has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded:
|
Supplying
|
|
Using Department
|
|
|
|
|
|
|
|
|
Department
|
Engineering
|
Administration
|
Maintenance
|
Fabrication
|
Assembly
|
|
Engineering
|
-0-
|
50%
|
-0-
|
10%
|
40%
|
|
Administration
|
20%
|
-0-
|
10%
|
50%
|
20%
|
|
Maintenance
|
-0-
|
20%
|
-0-
|
30%
|
50%
|
|
Direct cost
|
$200,000
|
$950,000
|
$250,000
|
$1,750,000
|
$500,000
|
Required
Allocate the service department costs to the two operating departments using the reciprocal method.