Question

5-40

Chapter 5 Job-Order Costing Professional Examination Problem 5-40 (Appendix 5B) Departmental Costing and Cost Allocation-Corinth Ltd. Corinth Ltd. consists of four departments: personnel and purching, which are service depart. ments; and machining and painting, which are production departments. Budgeted data for the year consisted of the following: Item Personnel Purchasing Machining Painting Overhead costs $40,000 $35,000 $128,000 S48,000 Number of employees 138 Machine hours 23,500 Direct labour costs $32,000 $147,000 Purchase requisitions 2,650 450 10 25 29 Required: 1. Allocate the two service departments' costs using the sequential allocation method and de velop departmental overhead rates for each of the production departments using the logical base for each department. 2. Calculate and give the journal entry to record the total amount of under-or overapp head for the company, assuming the following actual results for the year: Inder- or overapplied over- Overhead costs Direct labour costs Machine hours Machining $173,000 $ 38,300 24,150 Painting S 78,540 $139,750 29 3. Briefly discuss reasons for allocating service department costs. CASES

Answer 1

		Service Department		Operating Department
		Personnel	Purchasing	Machining	Painting
Overhead Costs		$40,000.00	$35,000.00	$128,000.00	$48,000.00
Allocation
(Personnel Department
Cost)
(15/178, 25/178, 138/178)		-$40,000.00	$3,370.79	$5,617.98	$31,011.24
(Purchase Department
Cost)
(2650/3100, 450/3100)			-$38,370.79	$32,800.83	$5,569.95
Total Costs after Allocation		$0.00	$0.00	$166,418.81	$84,581.19
Direct labour Costs		$0.00	$0.00	$32,000.00	$147,000.00
Total Costs		$0.00	$0.00	$198,418.81	$231,581.19
2.)
Journal Entry
Total Overhead actual incurred		$251,540.00	(173000+78540)
Total Overhead Budgeted		$251,000.00	(166418.81+84581.19)
Underapplied Overhead		$540.00
Description			Amount(Dr.)	Amount(Cr.)
Cost of Goods Sold			$540.00
	Manufacturing Overhead			$540.00
(Application of Underapplied
overhead to cost of goods sold)
3.)
Service department costs are allocated to operating department just because,
they are providing a support to the main operating departments. Their costs are therefore
allocated to operating departments

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