Pre-Fabricators Inc manufacturers and assembles prefabricated Concrete Board and UPVC materials which is used for the construction of low cost homes and green houses. There are three support departments and two production departments. The budgeted costs and the normal activity levels for each department are given below.

Support Departments Production Departments

	Design and Personnel	Fabrication & assembly	Installation	Concrete Board Homes	UPVC Green Houses
Overhead costs	$220,000	$1,200,000	$600,000
Square feet	200	3600	2,400	80,000	48,000
Number of employees	4	40	18	16	20
Material Cost	$45,000	$3,500,000	$420,000	1,400,000	$2,200,000
Total production in square meters				400,000	600,000
Direct labor cost				$500,000	$262,500

Question 2 contd

The allocation bases are as follows: Design Number of Employees, Fabrication Square feet and Installation Material costs. The production department allocates overhear cost to each case based on the budgeted cases produced for each product.

2). Set up the equations that should be solved if the reciprocal method is used to allocate the two-remaining support department cost to the production departments. (3 Marks)

3). Determine the cost per square meter using the reciprocal method of support cost allocation.