Example Departmental
Example Departmental
J &J Company has two service departments (SS1 and SS2) and two productions departments (PP1 and PP2). Departmental data for January were as
follows:
SS1 SS2
Costs incurred P27,000 P18,000
Services provided to:
SS1 - 20%
SS2 10% -
The reciprocal method allocates service department costs to other service departments as well as to production departments by means of simultaneous
equations, as shown below.
Thus, total service cost allocated to PP2 is P23,051 [(40% x P31,224) + (50% x P21,122)].
SS1 = P27,000 + .2 SS2
27,000 + [.2 (18,000 + .1 SS1)]
27,000 + 3,600 + .02 SS1
.98 SS1= P30,600
SS1= P31,224