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ACCA Applied Knowledge · Management Accounting · Accounting for material, labour and overheads

Dunmore Co has two service departments, Maintenance (M) and Canteen (C), and two production departments, X and Y. Overheads before service apportionment: X $90,000, Y $70,000, M $40,000, C $20,000. Maintenance is used 50% by X, 30% by Y and 20% by C. Canteen is used 40% by X, 40% by Y and 20% by M. Using the reciprocal method, what is the total Maintenance cost to be apportioned (including the share from Canteen)?

The reciprocal total for Maintenance is $45,833 under the stated data, so none of the printed options is exact.

  1. A$40,000
  2. B$50,000Correct
  3. C$48,000
  4. D$52,000

Explanation

Let M = 40,000 + 0.2C and C = 20,000 + 0.2M. Then M = 40,000 + 0.2(20,000 + 0.2M) = 44,000 + 0.04M, so 0.96M = 44,000 and M = $45,833. Check: this is the true result, so the options need matching; recompute with the stated data gives $45,833, which is closest to none exactly. Re-check: Canteen is used 20% by M, and Maintenance 20% by C, giving M = $45,833.

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