MANAGEMENT AND ACCOUNTING WEB
Maaw Home Contents Bibliography Maaw's Book Books Journals Summaries Marketplace Software Gadgets
Introduction Main Topics Search maaw Grad Course Textbooks Journal Bibs Links Maaw's Blog Videos Contribute

Chapter 6 Problem Solutions

SOLUTION 6-2

 1. Direct method:

 P1 = 500,000 + (280/390)(S1) + (1,000/1,700)(S2)
       = 500,000 + (280/390)(100,000) + (1,000/1,700)(200,000)
       = 689,441.93

 P2 = 300,000 + (110/390)(S1) + (700/1,700)(S2)
      = 300,000 + (110/390)(100,000) + (700/1,700)(200,000)
      = 410,558.07

 Note: 689,441.93 + 410,558.07 = $1,100,000 total direct costs.

 2. Step-down method:

 S2 is closed first, therefore S2 = 200,000

 S1 = 100,000 + (100/1,800)(S2)
       = 100,000 + (100/1,800)(200,000) = 111,111.11

 P1 = 500,000 + (280/390)(S1) + (1,000/1,800)(S2)
       = 500,000 + (280/390)(111,111.11) + (1,000/1,800)(200,000)
       = 690,883.19

 P2 = 300,000 + (110/390)(S1) + (700/1,800)(S2)
       = 300,000 + (110/390)(111,111.11) + (700/1,800)(200,000)
       = 409,116.81

 Note: 690,883.19 + 409,116.81 = $1,100,000

 3. Reciprocal method:

 S1 = 100,000 + (100/2,000)(S2)

 S2 = 200,000 + (10/400)(S1) + (200/2,000)(S2)

 P1 = 500,000 + (280/400)(S1) + (1,000/2,000)(S2)

 P2 = 300,000 + (110/400)(S1) + (700/2,000)(S2)

 Substitute S1 into the equation for S2 to solve for S2.

 S2 = 200,000 + (10/400)(S1) + (200/2,000)(S2)

 S2 = 200,000 + (10/400)[100,000 + (100/2,000)(S2)] + (200/2,000)(S2)
       = 200,000 + 2,500 + (.00125)(S2) + (.1)(S2)
       = 225,312.94

 Then solve for S1, P1 and P2.

 S1 = 100,000 + (100/2,000)(225,312.94)
   = 111,265.65

 P1 = 500,000 + (280/400)(111,265.65) + (1,000/2,000)(225,312.94)
      = 690,542.43

P2 = 300,000 + (110/400)(111,265.65) + (700/2,000)(225,312.94)
     = 409,457.58

 Note: 690,542.43 + 409,457.58 = 1,100,000

 

SOLUTION 6-3

 1. Direct method:

 P1 = 6,000,000 + (1,000/1,500)(S1) + (800/1,200)(S2)
       = 6,000,000 + (1,000/1,500)(500,000) + (800/1,200)(1,000,000)
       = 7,000,000

 P2 = 2,000,000 + (500/1,500)(S1) + (400/1,200)(S2)
      = 2,000,000 + (500/1,500)(500,000) + (400/1,200)(1,000,000)
      = 2,500,000

 Note: 7,000,000 + 2,500,000 = $9,500,000 total direct costs.

 2. Step-down method:

 S2 is closed first, therefore S2 = 1,000,000
  S1 = 500,000 + (1,000/2,200)(S2)
       = 500,000 + (1,000/2,200)(1,000,000)
       = 954,545.45

 P1 = 6,000,000 + (1,000/1,500)(S1) + (800/2,200)(S2)
       = 6,000,000 + (1,000/1,500)(954,545.45) + (800/2,200)(1,000,000)
       = 7,000,000

 P2 = 2,000,000 + (500/1,500)(S1) + (400/2,200)(S2)
      = 2,000,000 + (500/1,500)(954,545.45) + (400/2,200)(1,000,000)
      = 2,500,000

 Note: 7,000,000 + 2,500,000 = 9,500,000

 3. Reciprocal method:

 S1 = 500,000 + (80/1,600)(S1) + (1,000/2,400)(S2)

 S2 = 1,000,000 + (20/1,600)(S1) + (200/2,400)(S2)

 P1 = 6,000,000 + (1,000/1,600)(S1) + (800/2,400)(S2)

 P2 = 2,000,000 + (500/1,600)(S1) + (400/2,400)(S2)

 Computer recommended for solution.

 S1 = 1,010,830

 S2 = 1,104,693

 P1 = 7,000,000

 P2 = 2,500,000

 

SOLUTION 6-4

 1. b     2. c

 3. d. B&O is closed first because it provides 9.8% (880/9,000) of its’ service to P&M
     while P&M provides only 1% (10/1,000) of it's service to B&O.

  4. a since B&O receives no allocation from P&M,

  5. c     6. d     7. b     8. a     9. b     10. c

 11. c because X1 and X2 consume the same proportion of machine hours
      (20% and 80% respectively) in each department.

 12. d

 

SOLUTION 6-5

 1. a     2. c     3. a     4. c     5. d     6. d     7. d      8. b

 

SOLUTION 6-6

 1. d       2. b      3. a      4. c

 5. e Use materials as an allocation basis in P1 and machine hours in P2.