Reciprocal Method of Support Department Cost Allocation

Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly.

The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Valron Company uses the direct method of support department cost allocation.

Valron Company uses the reciprocal method to allocate support department costs.

Required:

1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method. Enter the ratios as decimal values and use these rounded values for subsequent calculations. If an amount is zero, enter “0”.

2. Develop a simultaneous equations system of total costs for the support departments. If required, round your answers to four decimal places. Use these numbers for subsequent calculations.

Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.)

3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. (Round all allocated costs to the nearest dollar.) If an amount is zero, enter “0”.

4. What if the square footage in Fabricating were 13,300 and the square footage in Assembly were 5,700. How would that affect the allocation of support department costs?