Question

Arid Company operates with two support and two production depts. Support Dept A costs are assigned with maintenance hours as the cost driver, and Support Dept B costs are assigned with headcount as the cost driver. The cost driver in Depts C and D is direct labor hours. One of the products the company produces requires 4 direct labor hours per unit in Dept C and 5 direct labor hours in Dept D. Prime cost for the product cost $110.00 per unit. What is the total cost of the product? Plan costs A $120,000 B $50,000 C $175,000 D $120,000 Maintenance hours 2,500 2,400 14,000 8,000 Headcount Direct labor hours 20 30 95 10,000 130 6,400

Answer 1

B 1 Total product cost 2 prime cost 110 3 Assigned cost Dept C 108.96 ($27.24 x 4 DLH) 4 Assigned cost Dept D 150.35 (30.07 x 5 DLH) 5 Total product cost 369.31 6 7 Working Note: 8 Support dept. cost to production departments - 9 Dept. A costs - Service hours as basis 10 overhead cost 1 120000 11 service hours 22.000l (only production depts.) 12 rate per service hour $5.45 per service hour 13 cost assigned to dept c 76300|(14000 x 5.45) 14 Cost assigned to Dept. D 43600(8000 x 5.45) 15 16 Dept B costs - number of employees 17 overhead cost 50000 18 number of employees 225 (only production dept.) 19 cost per employee 222 20 cost assigned to Dept C 21090 ($222 x 95) 21 Cost assigned to Dept D 28860 ($222 x 130) 22 Allocated Cost of 23 dept Cost Allocated cost of Dept A Dept B Total Cost Direct labor hours Overhead rate per hour 24 Dept C 175000 76300 21090 272390 10,000 27.239|(272390/10,000) 25 Dept D 120000 43600 288601 192460 6,400 30.071875 (192460/6,400) 43600