PAST YEAR QUESTION

Semester A182 - Q2C

JPK Healthcare is divided into TWO (2) operating departments; namely Laboratory and Tissue Pathology. The company allocates delivery and accounting costs to each operating department. Delivery costs include the costs of a fleet of vans and drivers that drive throughout the state each day to clinics and doctors' offices to pick up samples and deliver them to the centrally located laboratory and tissue pathology offices. Delivery costs are allocated on the basis of number of samples. Accounting costs are allocated on the basis of the number of transactions processed. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data:

Support Departments

Operating Departments

Delivery

Accounting

Laboratory

Pathology

Overhead cost (RM)

420,000

472,500

603,750

798,000

Number of samples

-

-

105,300

70,200

Transactions processed

3,500

-

37,050

19,950

REQUIRED:

(a)Assign the support department costs by using:

(i)the direct method, and

(ii)the sequential method.

(Compute the allocation rate to four decimal places and round your answer [allocated costs] to the nearest RM).

(b)Explain, by giving TWO (2) reasons, whether using reciprocal method is suitable in JPK Healthcare's cost allocation or not.