Amron Ltd has three production departments: M, N, and O and two service departments P and Q. The following particulars are available for the month of March 2020:

Particulars Amount ($)

Lease rental 35,000

Industrial power and fuel 420,000

Wages to supervisor of production departments 6,400

Electricity 5,600

Depreciation on machinery 16,100

Depreciation on building 18,000

Payroll expenses 21,000

Canteen expenses 28,000

Superannuation contribution 58,000

Further information regarding the above indirect expenses are as follows:

Particulars M N O P Q

Floor space (square meters) 1,200 1,000 1,600 400 800

Electricity connection points 42 52 32 18 18

Cost of machines ($) 1,200,000 1,000,000 1,400,000 400,000 600,000

Number of employees 48 52 45 15 25

Direct wages ($) 172,800 166,400 153,000 36,000 53,000

Horse power of machines 150 180 120 - -

Working hours 1,240 1,600 1,200 1,440 1,440

Working hours multiplied by horsepower of machines provides a basis for allocating industrial power and fuel charges. Direct material amounts to 150% of direct wages.

Required:

(a) Calculate the total cost of the production and service departments after allocating the above listed indirect expenses to production and service departments using appropriate allocation bases. (12 Marks)

(b) Recalculate the total cost of production departments after reallocating the cost of service departments to production departments based on reciprocal method (simultaneous equations method). The percentage of support provided by the service departments to the other departments is as follows: (8 Marks)