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“A factory consists of two production cost centres (G and H) and two service cost centres (J and K). The total overheads allocated and apportioned to each centre are as follows:
G H J K
$40,000 $50,000 $30,000 $18,000
The work done by the service cost centres can be represented as follows:
G H J K
% of service cost centre J to 30% 70% – –
% of service cost centre K to 50% 40% 10% –
What are the total overheads for production cost centre G after the reapportionment of all service cost centre costs?”
The answer is $58,540 and I initially tried to use the repeated distribution or algebraic method but was way off.
I’m not really sure on the correct way to working this out. Please can you assist?
When K is reapportioned, $9,000 (50%) goes to G, and $1,800 (10%) goes to J.
This means that the total in J is now 30,000 + 1,800 = $31,800.
When J is reapportioned, $9,540 (30% x 31,800) goes to G.
G already had $40,000, and so the new total for G is 40,000 + 9,000 + 9.540 = $58,540.
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