Forestland Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to each product line based on the percentage of thousand board feet produced by the product line. Your accounting firm has been retained by ForestLand for three years. You have been assigned to properly allocate support department costs. Your manager wants the allocation to be as accurate as possible and has instructed you to use the reciprocal services method. She reminds you that revenue from by-products are used to offset costs. You begin your research and learn that there are four production departments: log yard, milling, drying, and packaging. The Hardwood line produces 300 thousand board feet of product while the Softwood produces 900 thousand board feet. The milling department direct costs, direct labor and overhead per thousand board feet for Hardwood is two times that of Softwood. You have been instructed to use the weighted average method to allocate the costs in the milling department between the two product lines. The remaining department costs are the same for both product lines, per thousand board feet. There are two support departments: maintenance and administration. The maintenance department is responsible for maintaining all equipment and janitorial duties. Because the equipment is used more extensively for hardwoods, the department cost driver is hours worked. The administration department includes the company president and his staff. Their duties include accounting, human resources, and information technology. The cost driver for the administration department is number of employees. In your first step, you determine the costs traced to each department and the usage of the support department cost drivers. You have created the following table: Hours worked Number of employees Department costs Maintenance 11,000 8 $205,600 21,060 Administration Log Yard Milling 8,100 9,720 6 $369,200 $835,100 5 $248,600 Drying 16,200 Packaging 25,920 333 $508,700 $290,100 Your next step is to determine the proportional usage of each support department's cost driver by the other departments to which its costs are to be allocated. Complete the following tables. Maintenance Department Hours Worked Usage Percent Administration 8,100 10 % Log Yard 9,720 12 Milling Drying Packaging 21,060 26 16,200 20 25,920 32 Totals 81,000 100 % Administration Department # of Employees Usage Percent Maintenance 8 16 % Log Yard 6 12 Milling 12 24 Drying 16 32 V Packaging 8 16 Totals 50 100 % Using the cells below, create the formulas that will simultaneously allocate support department costs among the departments. "M" represents Maintenance and "A" represents Administration. M-S 205,600 + 16 % A ) 340 cool Solve the equations, If required round any decimal to three places in your computations. For example, .0183 would be rounded to .018. Round your final answer to the nearest dollar. M-S A = $ 249,366 V 273,537 Feedback Check My Work There are two support departments and four production departments. The total cost of each support department is allocated to the other support department and the four production departments on the basis of a cost driver. What is the cost driver for the Maintenance Department? For the Administrative Department? For each support department, find the units of its cost driver related to the other support department and each of the four production departments. Add these to find the total units of the cost driver consumed by the five departments. Then calculate the percentage of the total consumed by each department. Review the Reciprocal Services Method in your text. Remember the total cost to be allocated from a support department is the sum of its original departmental costs and its share of the costs allocated from the other support department. How would this be expressed in an equation? Use the following table to allocate the support cost departments. Round allocated amounts to the nearest whole dollar. If an amount is zero, enter "0". Support Departments Maintenance Hours worked 11,000 Number of employees 8 Administration 8,100 5 Production Departments Log Yard Milling Drying Packaging 9,720 21,060 16,200 25,920 6 12 V 16 8 Department cost 205,600 248,600 369,200 835,100 508,700 290,100 Maintenance Administration 249,366 V 273,537 Final department costs 0 Feedback 0 Check My Work Multiply the total cost to be allocated from a support department by the percentage of that cost consumed by the other support department and each of the production departments to find the amount allocated to each department. What should be the total cost remaining in a support department when the allocation process is finished? Using the rounded amounts from the support cost allocation table (previous task), complete the following table to allocate the production department costs to each product line. Round allocated amounts to the nearest whole dollar. Log Yard: Thousand Board Feet Weight Factor Weighted Thous. Bd. Ft. Weighted % of Board Feet Final Department Costs Cost Allocation to Product Line Hardwood 300 1 300 25 % x Softwood 900 1 900 75 x Total Log Yard 1,200 2 1,200 100 % Milling: Hardwood 300 2 600 40 Softwood 900 1 900 60 Total Milling 1,200 3 1,500 100 % Drying: Hardwood 300 300 25 % x Softwood 900 1 900 75 Total Drying 1,200 2 1,200 100 % Packaging: Hardwood 300 1 300 25 % x Softwood 900 1 900 75 Total Packaging 1,200 2 1,200 100 % Feedback Check My Work The weighted average method allocates joint costs based on weight factors for each product. The weight factors are multiplied by physical units to arrive at weighted physical units. These weighted physical units are then used to allocate the joint costs to the products. Forest Land earns revenue of $100,000 from selling its by-products, wood shavings and saw dust. Allocate the revenue to each product line in the following table and determine the final cost per product line. Thousand Percentage of By-product Portion of By- Board Feet Board Feet Revenue product Revenue Hardwood 300 25 % $100,000 $ 25,000 Softwood 900 75 100,000 75,000 Total 1,200 100 % 100,000 Log Yard Milling Drying Packaging Subtotal Portion of By-product revenue Total cost per product line Feedback Cost per Product Line Hardwood Softwood Check My Work What is the effect of by-product revenue on product line costs? Feedback Check My Work Partially correct