Question

Goal: To allocate service department costs in a service company and use them to calculate full cost per unit. Information: Frogs, Inc.'s owners were impressed by your analysis and has decided that a more detailed cost allocation system would indeed be better for the company. As part of your managerial duties, they have asked you to improve their cost accounting system. In the past, the owners have used only DM, DL, and Manufacturing OH to calculate the cost of their jobs. However, you know that there are other costs in the company that contribute to the jobs. You tell the owners that you will present a cost analysis that includes all of these costs. The owners plan to meet with you on Friday to evaluate your proposal. After talking with the service department managers and asking them for the figures you need, they present you with the following chart of information: Owners Marketing Design Engineering Department Department Admin Support Concrete Casting Department $15,500 $30,000 $186,000 $14,000 $50,000 $40,000 Budgeted Overhead Assigned Driver Number Number of Direct labor Number of Number projects hours frogs made of projects of Square feet of office space 4,500 projects 200 16,640 1,000 200 200 Budgeted Drivers 600 2,000 400 750 0 Office Space Used Number of 50 projects Frogs, Inc. Page 7 of 10

Bottom image is the information needed from part 2 question 4

Answer 1

Q.1 Identify Issues

The overhead of service department i.e. Marketing and Admin Support department overhead is not getting allocated at all. In view of this the analysis of any project can go wrong

Q.2 Calculate cost of the project on the base of DM, DL & Manufacturing overhead

	Concrete Casting Department	Design Department	Engineering Department	Owners	Total
Direct Material	62,000.00	10,000.00	900,000.00	1,000.00	973,000.00
Direct labour	208,000.00	436,800.00	447,200.00	187,200.00	1,279,200.00
Overhead Cost	23,000.00	40,000.00	200,000.00	21,000.00	284,000.00
Total	293,000.00	486,800.00	1,547,200.00	209,200.00	2,536,200.00

Q.3 Cost calculation after allocation of service department cost :

Cost allocation - Step method for service allocation
	Design Department	Engineering Department	Concrete Casting Department	Owners	Admin Support	Marketing
Budgeted Overhead	30,000.00	186,000.00	15,500.00	14,000.00	50,000.00	40,000.00
Office Sapce Used	600.00	2,000.00	400.00	750.00	-	750.00
Admin ovehead rate	11.11	11.11	11.11	11.11		11.11
Admin Support Overhead allocation	6,666.67	22,222.22	4,444.44	8,333.33		8,333.33
Total Cost after Marketing Overhead	36,666.67	208,222.22	19,944.44	22,333.33		48,333.33
Number of Project (cost driver for marketing overhead allocation)	50.00	50.00	50.00	50.00
Marketing ovehead rate	241.67	241.67	241.67	241.67
Marketing Overhead allocation	12,083.33	12,083.33	12,083.33	12,083.33
Total Cost after Admin Overhead Overhead	48,750.00	220,305.56	32,027.78	34,416.67
Drivers	200.00	16,640.00	1,000.00	200.00
Cost per Driver	243.75	13.24	32.03	172.08

Drivers usage for Project
	Concrete Casting Department	Design Department	Engineering Department	Owners
Overhead Allocated (a)	23,000.00	40,000.00	200,000.00	21,000.00
Cost per Driver (b)	150.00	11.18	15.50	70.00
Drivers used in number (a/b)	153.33	3,578.49	12,903.23	300.00

Frog Inc's Project Cost after allocation of Service Department cost allocation
	Concrete Casting Department	Design Department	Engineering Department	Owners	Total
Direct Material	62,000.00	10,000.00	900,000.00	1,000.00	973,000.00
Direct labour	208,000.00	436,800.00	447,200.00	187,200.00	1,279,200.00
Overhead Cost (c*A)	37,375.00	47,377.54	413,261.65	51,625.00	549,639.19
Total	307,375.00	494,177.54	1,760,461.65	239,825.00	2,801,839.19

Q.4 : The result of Q.3 would be preferable as it is proper allocation of all overheads

Q.5 :