Refer to Cornerstone Exercise 7.3. Now assume that Valron Company uses the reciprocal method to allocate support department costs.
In exercise Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly.

The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Valron Company uses the direct method of support department cost allocation.
Required:
1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method.
2. Develop a simultaneous equations system of total costs for the support departments. Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.)
3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. (Round all allocated costs to the nearest dollar.)
4. What if the square footage in Fabricating were 13,300 and the square footage in Assembly were 5,700. How would that affect the allocation of support department costs?

Transcribed Image Text:

Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs Normal activity: 160,000 S340,000S $114,600 $93,000 Number of employees Square footage 80 5,700 170 13.300 60 1,000