AC505's Unit 3 cost allocation exercise spreads a nut processor's maintenance and lab costs by direct, step-down and reciprocal methods, then tests an outside lab's bid against avoidable cost. Searches like "ac 505 unit 3 assignment example", "ac505 unit 3 sample" and "ac505 unit 3 example" land here.
What a finished AC505 Unit 3 cost allocation exercise looks like
A service matrix, four allocation schedules and a one-page decision note. The matrix shows maintenance, with 720,000 dollars of its own cost, giving 10 percent of its hours to the lab and 45, 30 and 15 percent to roasting, the butter line and the bar line. The lab, at 480,000 dollars, spends 20 percent of its testing on maintenance and 25, 35 and 20 percent on the three operating departments. The direct method ignores the exchange; step-down recognizes it one way and is run twice to show that order matters; the reciprocal method solves both at once, giving maintenance a total of 832,653 and the lab 563,265. A summary table puts each department's four allocations side by side before the bid note.
How a AC505 Unit 3 example is structured
Facts, methods, comparison, decision. The service matrix comes first so that every later figure traces to a percentage in it. The direct method is computed and its blind spot stated: the lab's use of maintenance simply disappears. Step-down follows twice, maintenance first and then the lab first, and the bar line's charge moves from 246,000 to 232,000 dollars on the order alone, with nothing in the plant changed. The reciprocal method is set out as two simultaneous equations, solved and allocated, and the exercise explains why its totals exceed each department's own costs without inflating the grand total. In the comparison table, the bar line's four allocations sit within 14,000 dollars of one another. The final section turns to the question the methods actually decide: whether a 470,000-dollar outside bid should replace the lab.
A matrix of mutual service
Maintenance supplies 10 percent of its hours to the lab; the lab runs 20 percent of its tests for maintenance, on lubricants and post-repair swabs. Every later figure traces to one of these percentages, which the exercise states once and never adjusts.
Direct, with its blind spot
Roasting receives 510,000 dollars, the butter line 450,000 and the bar line 240,000. The method is quick and defensible for product costing, but it deletes the exchange between the two service departments, which later matters for the outsourcing question.
Step-down, run in both orders
Maintenance first sends 72,000 dollars to the lab and gives the bar line 246,000. Lab first sends 96,000 to maintenance and gives the bar line 232,000. Nothing in the plant changes between the two runs, so the difference is pure method.
Two equations, solved together
Maintenance equals 720,000 plus 20 percent of the lab; the lab equals 480,000 plus 10 percent of maintenance. Solving gives 832,653 and 563,265, spread by the full matrix: roasting ends at 515,510, butter at 446,939 and bars at 237,551.
An outside bid against the right cost
An outside lab offers all testing for 470,000 dollars. Against the reciprocal total of 563,265 the bid looks like a saving; against avoidable cost, 430,000 of lab spending plus 28,800 of maintenance time freed, it costs 11,200 more.
Where marks go in AC505 Unit 3
Allocation exercises at this level are marked less on arithmetic than on what the author does with the results, and many answers stop at four schedules with no comment on why they differ. The reciprocal method set up with the wrong direction of service, or solved without checking that allocations sum to 1,200,000 dollars, costs the computation marks. Step-down run in one order only misses the point that sequence is a choice with consequences, and graders frequently ask which order was used and why. The costliest conceptual error is treating a reciprocal cost as avoidable when judging an outside bid, since that total includes services exchanged internally and fixed costs that would remain. Answers earn most when they match each method to a purpose, product costing or an outsourcing decision, instead of declaring one method best for everything.
Get a AC505 Unit 3 example written to your instructions
Service percentages and department costs from the Unit 3 case are all the figures needed, plus a note of which methods your instructions call for and the rubric. Every required method is then computed, the step-down order defended and any outsourcing question answered on avoidable cost, within 24-48h and free for a first sample.
AC505 Unit 3 questions, answered
Why do the reciprocal totals exceed each department's own cost?
Because each service department's reciprocal total includes the services it received from the other. Maintenance's 832,653 dollars is its own 720,000 plus its share of the lab's work. The excess is internal exchange, not new cost, and it cancels out: allocations to operating departments still sum to 1,200,000. Checking that total is the quickest proof the equations were set up correctly.
Which department should go first in step-down?
Common conventions start with the department that serves the other the most, measured by cost or by share of output, or with the one whose own costs are largest. The choice should be stated and defended, because the order changes the results. Running both orders, as this sample does, shows how much the convention matters in the specific plant.
Is the reciprocal method always the best choice?
It is the most complete, since it recognizes every exchange between service departments, and it clarifies what an outside supplier would have to replace. For routine product costing, where differences are small, many firms accept direct or step-down to save effort. A good answer matches the method to the decision rather than ranking methods in the abstract.