New Delhi Company has two producing departments (Mixing and Finishing) and two support departments

(Maintenance and Technology). Department Costs and other relevant data for the month of August are as
follows:

Maintenance Technology
Cost Incurred 83,200.00 50,000.00
Percentage Provided to:
Maintenance - 10%
Technology 20% -
Mixing Department 30% 20%
Finishing Department 50% 70%
100% 100%

Required: Calculate the support department costs allocated to Mixing and

Finishing using:
1. Direct Distribution Method
2. Sequential distribution or step-down method
3. Algebraic distribution or reciprocal method

1. Direct Distribution Method

Maintenance Technology Mixing dept Finishing dept Total
Department Costs 83,200.00 50,000.00 133,200.00
Maintenance Allocation (83,200.00) 31,200.00 52,000.00 -
Technology Allocation (50,000.00) 11,111.11 38,888.89 -
Total Cost after Allocation - - 42,311.11 90,888.89 133,200.00

2. Sequential distribution or step-down method

Maintenance Technology Mixing dept Finishing dept Total
Department Costs 83,200.00 50,000.00 133,200.00
Maintenance Allocation (83,200.00) 31,200.00 52,000.00 -
- 50,000.00 31,200.00 52,000.00 133,200.00
Technology Allocation (50,000.00) 11,111.11 38,888.89 -
Total Cost after Allocation - - 42,311.11 90,888.89 133,200.00

3. Algebraic distribution or reciprocal method

Maintenance Technology Mixing Finishing Total
Maintenance Allocation 0% 20% 30% 50% 100%
Technology Allocation 10% 0% 20% 70% 100%

Maintenance Technology Mixing dept Finishing dept Total

Department Costs 83,200.00 50,000.00 133,200.00
Maintenance Allocation (90,000.00) 18,000.00 27,000.00 45,000.00 -
Technology Allocation 6,800.00 (68,000.00) 13,600.00 47,600.00 -
Total Cost after Allocation - - 40,600.00 92,600.00 133,200.00
 Maintenance Technology
Mixing Dept 30% 20%
Finishing Dept 50% 70%
80% 90%

Maintenance Technology
Mixing Dept 30% 20%
Finishing Dept 50% 70%
80% 90%

Step 1: Cost of service departments after distribution from other service departments
Maintenance (M) = 83,200.00 + 0.10T
Technology (T)= 50,000.00 + 0.20M

Step 2: Substitute the value of T to the first equation )

M= 83,200.00 + 0.10 ( 50,000.00 + 0.20 M )
M= 83,200.00 + ( 5,000.00 + 0.02 M
M= 88,200.00 + 0.02 M
0.98 M = 88,200.00
 M= 88,200.00 / 0.98
M= 90,000.00

Step 3: Substitute the value of M to the second equation.

T= 50,000.00 + 0.20 ( 90,000.00 )
T= 50,000.00 + 18,000.00
T= 68,000.00

OR

Step 1: Cost of service departments after distribution from other service departments
Maintenance (M) = 83,200.00 + 0.10T
Technology (T)= 50,000.00 + 0.20M

Step 2: Substitute the value of M to the second equation

T= 50,000.00 + 0.20 ( 83,200.00 + 0.10 )
T= 50,000.00 + ( 16,640.00 + 0.02 )
T= 66,640.00 + 0.02
(0.98) T = 66,640.00
T= 66,640.00 / 0.98
T= 68,000.00

Step 3: Substitute the value of T to the second equation.

M= 83,200.00 + 0.10 ( 68,000.00 )
M= 83,200.00 + 6,800.00
M= 90,000.00