Question

The Southern Wind Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: 囲click the icon to view the department overhead budgets.) Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: 囲(Click the icon to view the data.) Read the requirements Support departments: $30,000 1,350 77,136 1,049 Building and grounds Personnel General plant administration Cafeteria: Operating loss Storeroom 4,532 s 114,067 Operating departments: Machining $ 33,000 48,000 81,000 Assembly $195,067 Total for support and operating departments Direct Square Feet of Manufacturing Number of Labor-Hours Requisitions Manufacturing Number of Floor Space Occupied Department Building and grounds Personnel* General plant administration Cafeteria: operating loss Storeroom Machining Assembly Total Basis used is number of employees Labor-Hours Employees 1,800 3,600 4,500 7,200 31,500 151,400 200,000 36 1,000 2,000 11,000 46,000 60,000 3,000 2,000 5,000 8,000 32,000 40,000 45 81 180 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate 2. Using the direct method, rework requirement 1 3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2. 4. The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allo efer from the results obtained in requirements cation method would you pr 1 and 2? Explain. Direct Manufacturing Labor-Hours Machining Assembly Job 88 18 Job 89 Requirement 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing laborhour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. Begin by selecting the allocation base for each support department. Support Department Building and grounds Personnel General plant administration Allocation Base Begin by selecting the allocation base for each support department. Support Department Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom Allocation Base

Answer 1

1. Step down Method of Allocation of Overheads Service Departments Operating Departments General Plant Administration 77,136 Particulars Building and 30,000 (30,000) Personnel Caferia-Loss Storeroom Machining Assembly ounds Gr 1049 675 81 78,000.300 48,000 1,350 Departmental Costs before Allocation Allocation 3,000.... ,532 405·… 22210 .800 3,400 136,502 32,000 270 1,620 540 324 1,080 81 - Building and Grounds .. Personnel …2600 8,500) 14,300 아 …1,035 5,100 58,565 - General Plant Administration 20 Caferia-Loss (3,105) - Storeroom Total Costs after Allocation Machine Hours/Labour Hours Predetermined Overhead Rate 732

Apportionment of Buildings and Grounds Particulars Calculation Amount ($) Personnel General Plant Administration Caferia-Loss Storeroom Machining Assembly $ 30,000 1,800/200,000 $ 30,000 3,600/200,000 S 30,000 4,500/200,000 S 30,0007,200/200,000 $ 30,000 31,500/200,000 $ 30,000151,400/200,000 270 540 675 1,080 4,725 22,710 30,000 Apportionment of Personnel: Particulars Calculation $ 1,620 * 36/180 $1,620 * 9/180 $1,620 * 9/180 $1,620 * 45/180 Amount ($) 324 81 81 General Plant Administration Caferia-Loss Storeroom Machining 405 729 1,620 Assembly $1,620 81/180 Apportionment of General Plant Administration Particulars Calculation $78,000,000/60,000 $78,0002,000/60,000 $78,0001,000/60,000 $78,000* 46,000/60,000 Amount ($) 1,300 2,600 14,300 59,800 78,000 Caferia-Loss Storeroom Machining Assembly

Apportionment of Cafeteria Particulars Calculation $ 3,105 * 9/135 $ 3,105 * 45/135 $ 3,105 * 81/135 Amount ($) 207 1,035 1,863 Storeroom Machining Assembly 3,105 Apportionment of Store Room: Machining Assembly Particulars Calculation $ 8,500 * 3000/5000 $ 8,500 * 2000/5000 Amount $) 5,100 3,400 8,500

2. Direct Method of Allocation of Overheads: Service Departments Operating Departments Particulars Building and Grounds General Plant Administration Personnel Caferia-Loss Storeroom Machining Assembly Departmental Costs before Allocation Allocation - Building and Grounds - Personnel - General Plant Administration 1,350 30,000 77156.! 1,049 4,532 33,000 48,000 30,0 2,833 4,88674 167 (77,136 62.250 375 2,719 56,629 Caferia-Loss - Storeroom Total Costs after Allocation Machine Hours/ Labour Hours Predetermined Overhead Rate 1,049 4,532 1,813 138,438 32,000 7.08

3. Computation of the Overhead Costs for the jobs under different methods: Job 88: Particulars Calculation Amount ($ (7.32*22).+ (4.27*6) (7.08*22)-+ 4.33*6 Step-down Method 186.66 Direct Method 181.74 Job 89: Particulars Calculation Amount ($ (7.32*2)+ (4.27*18 (7.08*2)+ 4.33"18) Step-down Method 91.50 Direct Method 92.10 Allocation Base: Particulars Base No. of Square Feet No. of Employees Labour Hours No. of Employees No. of Requisitions Buildings and Ground Personnel General Plant Administration Caferia-Loss Storeroom 4. For the Machining Department, Direct Method is preferred as it will result in the lower allocation of the support department costs. And in case of assembly department, Step-down method is beneficial as it will result in the allocation of the low support department costs.