Johnsons Inc. has two production departments, Cutting and Polishing, and two service departments, Electricity and Water. Electricity renders 30% of its services to Water, 40% to Cutting, and30%toPolishing,whileWaterrenders25%ofitsservicestoElectricity,25%toCutting ,and50%to Polishing. Total costs before allocation are $400,000 for Electricity and $300,000 for Water. You are the manager of the Polishing department.

1. Upper management has decided to use the step down method (allocating Electricity first). How much service department cost would beal located toyourdepartment?(SHOWCOMPUTATIONS)

2.Writeoutthetwoequations thatwouldneedtobesolvedunderthereciprocal method.(DO NOT SOLVE THE PROBLEM - JUST LIST THE TWO EQUATIONS).

3.Referto#1aboveregarding Johnsons Inc,andassumethefollowing costsforWaterand Electricity:

Cost Type: Water Electricity

Direct Labor 120,000 150,000

Variable Overhead 80,000 130,000

Supervisor Salary 80,000 72,000

Rent on Facilities 20,000 48,000

Total 300,000 400,000

Assume Electricity currently supplies a total of 800,000 kilowatt-hours. Big Bobs Company has approached Johnsons about supplying the electricity required for Johnson's internal operations. If outsourcing occurs, 75% of the fixed costs in the Electricity department can be saved by closing it down, except the electricity supervisor can't be fired (he must be paid his original salary). However, the supervisor could be transferred to a vacated supervisor position in the Water department that otherwise will be filled by a person who would be hired and paid $55,800. What is the maximum price per kilowatt-hour that Scratchy would accept for the outsourcing offer from Big Bob?

Answer rating: 100% (QA)

Lets address each question step by step 1 Step Down Method Allocation of Service Department Costs Well first allocate costs from the Electricity depar... View the full answer