Required 1). Using the step-down method, allocate the Design cost. 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). Determine the cost per home using the reciprocal method of support cost allocation. Please help me understand this question.
Pre-Fabricators Inc manufacturers and assembles prefabricated concrete and green heart homes for the lower to middle income housing market. 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 | Green Heart | |
| Overhead costs | $150,000 | $3,00,000 | $1,820,000 | ||
| Square feet | 200 | 3600 | 2,400 | 60,000 | 72,000 |
| Number of employees | 3 | 11 | 6 | 18 | 14 |
| Material Cost | $45,000 | $450,000 | $720,000 | 2,000,000 | $1,800,000 |
| Homes (estimated production) | 40 | 60 | |||
| Prime |
$78,000 | $62,500 |
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.
Required
1). Using the step-down method, allocate the Design cost.
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). Determine the cost per home using the reciprocal method of support cost allocation. Please help me understand this question.
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