Question

Using the reciprocal method spreadsheet (shown in Exhibit), show the costs allocated to production for Steamco Corporation. Use the data in Problem 11-49.
In Problem 11-49, Steamco Corporation is reviewing its operations to see what additional energy-saving projects it might adopt. The company's manufacturing plant generates its own electricity using a process capturing steam from its production processes. A summary of the use of service departments by other service departments as well as by the two producing departments at the plant follows:


Direct costs (in thousands) in the various departments follow:
Department Direct costs
Steam Generation (S1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 210
Electric Generating:
Fixed costs (S2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Variable costs (S3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Equipment Maintenance (S4) . . . . . . . . . . . . . . . . . . . . . . 144
Production
Alpha (P1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800
Beta (P2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320
Steamco currently allocates costs of service departments to production departments using the step method. The local power company indicates that it would charge $480,000 per year for the electricity that Steamco now generates internally. Management rejected switching to the power company on the grounds that its rates would cost more than the $330,000 ($90,000 + $240,000) cost of the present, company-owned,system.


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  • CreatedDecember 18, 2013
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