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The Martindale Company has two products. Product 1 is manufactured entirely in department X. Product 2 is manufactured entirely in department Y. To produce these two products, the Martindale Company has two support departments: A (a materials-handling department) and B (a power-generating department). An analysis of the work done by departments A and B in a typical period follows. E: (Click the icon to view analysis of the work done by departments A and B.) The budgeted costs of the support departments for the coming year are as follows. B (Click the icon to view the budgeted costs of the support departments.) Required i Click the icon to see the Worked Solution. Requirement 1. What are the allocations of costs of support departments A and B to operating departments X and Y using (a) the direct method, (b) the step-down method (allocate department A first), (C) the step-down method (allocate department B first), and (d) the reciprocal method. (a) the direct method Using the direct method, allocate the support-department costs. (Do not round interim calculations, and round your answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs.) A B Y Costs to be allocated Allocate A 11 Allocate B Total Analysis of the work done by departments A and B Used by A B Y Supplied by A 420 630 1,050 255 B 1,530 765 The work done in department A is measured by the direct labour-hours of materials-handling time. The work done in department B is measured by the kilowatt-hours of power. Budgeted costs of support departments Department A (Materials Handling) Department B (Power Generation) $ Variable indirect labour and indirect material costs Supervision Depreciation 312,000 93,600 31,200 31,200 52,000 200,000 $ 283,200 + Materials-handling costs $ 436,800 + Power costs The budgeted costs of the operating departments for the coming year are $2,600,000 for department X and $2,000,000 for department Y. Supervision costs are salary costs. Depreciation in department B is the straight-line depreciation of power-generation equipment in its 19th year of an estimated 25-year useful life, it is old, but well maintained, equipment. Required 1. What are the allocations of costs of support departments A and B to operating departments X and Y using (a) the direct method, (b) the step-down method (allocate department A first), (c) the step-down method (allocate department B first), and (d) the reciprocal method (use the linear equation method)? 2. An outside company has offered to supply all the power needed by the Magical Company and to provide all the services of the present power department. The cost of this service will be $85 per kilowatt-hour of power. Should Magical accept? Explain
