The Accountants at King Industries Want to Determine the Amount

question 10

Essay

The accountants at King Industries want to determine the amount of support department costs that should be allocated to its operating departments. Actual support costs and allocation base information for the two support departments is shown below. The costs of support department S1 are allocated based on the number of service calls made, and the costs of support department S2 are allocated based on square metres.
Support Departments Operating Departments
S1 S2 O1 O2
Direct support costs $73,000 $35,000 ---- ----
Allocation bases:
Service calls 3 5 9 6
Square metres 5,000 2,000 25,000 20,000
Using the reciprocal method:
a)Determine the equations for allocating S1 and S2 costs
b)Determine the amount of cost allocated from S2 to S1
c)Determine the amount of cost allocated from S1 to O2
d)Determine the total support department costs allocated to the operating departments

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Definitions:

Ineffective

Refers to something that does not produce the desired result or is not having the intended effect.

Available

Accessible or at hand; able to be used or obtained.

Syllogism Valid

An argument form with two premises and a conclusion, valid if the conclusion logically follows from the premises.

Accounting Error

A mistake in the recording, categorization, or calculation of financial transactions.