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 Forest Land 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 11,825 10,692 8,910 28,512 23,166 17,820 Number of employees 6 4 4 12 8 10 Department costs $212,960 $261,690 $375,045 $767,400 $524,095 $271,040 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, 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 "O". Support Departments Production Departments Milling Drying Maintenance Administration Log Yard Packaging Hours worked 11,825 10,692 8,910 28,512 23,166 17,820 Number of employees 6 4 12 10 Department cost 261,690 375,045 767,400 524,095 $ 271,040 212,960 Maintenance 256,837 30,820 25,684 82,188 66,778 51,367 Administration 43,877 292,510 29,251 73,128 X 87,752 x 58,502 x $ Final department costs o 29,251 922.716 0 Feedback 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 ? Thousand Board Feet Weight Factor Weighted Thous. Bd. Ft. Weighted % of Board Feet Final Department Costs Cost Allocation to Product Line Log Yard: Hardwood 300 1.00 300 25 % x $ 430,032.06 x $ Softwood 900 1.00 900 75 X 430,032.06 x Total Log Yard 1,200 2.00 1,200 100 % $ Milling: Hardwood 300 2.00 600 40 % x Softwood 900 1.00 900 60 Total Milling 1,200 3.00 1,500 100 % $ Drying: Hardwood 300 1.00 300 25 % x $ Softwood 900 1.00 900 75 X Total Drying 1,200 2.00 1,200 100 % $ Packaging: Hardwood 300 1.00 300 25 % x Softwood 900 1.00 900 75 X Total Packaging 1,200 2.00 1,200 100 % Check My Work Cost per Product Line Hardwood Softwood Log Yard 107,508.01 x 281,283.75 X Milling Drying Packaging Subtotal $ $ Portion of By-product revenue Total cost per product line Feedback Check My Work What is the effect of by-product revenue on product line costs? Feedback Check My Work Partially correct Check My Work