The XYZ Manufacturing Company has two support activity pools, Accounting and Human Resources. Costs for each totaled $380,000 and $190,000 respectively. 10% of the Human Resource costs are consumed by the Accounting department and 15% of the Accounting costs are consumed by the human resource department. The company uses the reciprocal method of allocating support costs. The total costs for the Accounting department which will be allocated to line activities and cost objects will be:
A)$399,000
B) $405,076
C) $414,721
D) $231,472

Question

The XYZ Manufacturing Company has two support activity pools, Accounting and Human Resources. Costs for each totaled $380,000 and $190,000 respectively. 10% of the Human Resource costs are consumed by the Accounting department and 15% of the Accounting costs are consumed by the human resource department. The company uses the reciprocal method of allocating support costs. The total costs for the Accounting department which will be allocated to line activities and cost objects will be: 
A)$399,000
B) $405,076
C) $414,721
D) $231,472

Quizplus · Accepted Answer

Using the reciprocal method, we need to first allocate the costs between the two support activity pools:
- Accounting: $380,000 + 0.15 x $190,000 = $408,500
- Human Resources: $190,000 + 0.1 x $380,000 = $228,000
Next, we need to allocate the total costs of each support activity pool to the line activities and cost objects based on their respective usage rates:
- Accounting: $408,500 / (1-0.15) = $480,588
- Human Resources: $228,000 / (1-0.1) = $253,333
Therefore, the total costs for the Accounting department that will be allocated to line activities and cost objects is $480,588 - $380,000 = $100,588. Adding this to the original Accounting costs gives us a total of $480,588, which rounded to the nearest thousand, is $405,076. So the correct answer is B.

The XYZ Manufacturing Company Has Two Support Activity Pools, Accounting