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:

	Maintenance	Administration	Log Yard	Milling	Drying	Packaging
Hours worked	10,750	8,100	9,720	21,060	25,920	16,200
Number of employees	6	4	4	12	8	10
Department costs	$176,000	$216,275	$309,940	$747,000	$433,160	$224,000

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			%
Log Yard
Milling
Drying
Packaging
Totals			%

Administration
Department	# of Employees	Usage Percent
Maintenance			%
Log Yard
Milling
Drying
Packaging
Totals			%

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 =

A=

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 =

A =

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			Production Departments
	Maintenance	Administration		Log Yard	Milling	Drying	Packaging
Hours worked
Number of employees
Department cost
Maintenance
Administration
Final department costs

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.

	Thousand Board Feet	Weight Factor	Weighted Thous. Bd. Ft.	Weighted % of Board Feet			Final Department Costs	Cost Allocation to Product Line
Log Yard:
Hardwood
Softwood
Total Log Yard					%
Milling:
Hardwood					%
Softwood
Total Milling					%
Drying:
Hardwood					%
Softwood
Total Drying					%
Packaging:
Hardwood					%
Softwood
Total Packaging					%

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 Board Feet	Percentage of Board Feet		By-product Revenue	Portion of By- product Revenue
Hardwood
Softwood
Total

	Cost per Product Line
	Hardwood	Softwood
Log Yard
Milling
Drying
Packaging
Subtotal
Portion of By-product revenue
Total cost per product line