Response to the following problem:
A hypothetical manufacturing company has four service departments and three operating departments. Administration, Finance, Maintenance and Material Handling provide services to each other and to the three operating departments: Machining, Assembly, and Finishing & Packaging.
The table below shows the breakdown of services provided by the service departments to all other departments.
Administration uses:
15% of Finance Department's costs
5% of the Maintenance Department's costs
15% of the Material Handling Department's costs
Finance uses:
20% of the Administration Department's costs
5% of the Maintenance Department's costs
5% of the Material Handling Department's costs
Maintenance uses:
5% of the Administration Department's costs
10% of the Finance Department's costs
5% of the Material Handling Department's costs
Material Handling uses:
15% of the Administration Department's costs
25% of the Finance Department's costs
5% of the Maintenance Department's costs
Machining uses:
15% of the Administration Department's costs
20% of the Finance Department's costs
55% of the Maintenance Department's costs
40% of the Material Handling Department's costs
Assembly uses:
30% of the Administration Department's costs
25% of the Finance Department's costs
20% of the Maintenance Department's costs
20% of the Material Handling Department's costs
Finishing & Packaging uses:
15% of the Administration Department's costs
5% of the Finance Department's costs
10% of the Maintenance Department's costs
15% of the Material Handling Department's costs
Total departmental costs before any allocations have been made are:
Administration $1,700,000
Finance 350,000
Maintenance 275,000
Material Handling 400,000
Machining 650,000
Assembly 400,000
Finishing & Packaging 225,000
Total Costs $4,000,000
Required:
Use the reciprocal method to find the correct allocations.