Question

Triumph Trophies makes trophies and plaques and operates at capacity. Triumph does large custom orders, such as the participant trophies for the Minnetonka Little League. The controller has asked you to compare plant-wide, department, and activity-based cost allocation Triumph Trophies Budgeted Information for the Year Ended November 30, 2014 Forming Department Trophies Plus Total Direct materiais $28,000 $48.500 Direct manufacturing labor 31,200 18.000 49,200 Overhead costs 24.00 General overhead 20.772 Assembly Department Trophies Plaques Total Directorials S5200 $18.750 950 Direct manufacturing labor 15.00 21 000 35 500 Overhead costs Set up .000 Supervision Other information follows: Setup costs in each department vary with the number of batches processed in each department. The budgeted number of batches for each product line in each department is as follows: Trophies 40 Forming department Assembly department Plaques 116 103 Supervision costs in each department vary with direct manufacturing labor costs in each department. Required: 1. Calculate the budgeted cost of trophies and plaques based on a single plant-wide overhead rate, if total overhead is allocated based on total direct costs. 2. Calculate the budgeted cost of trophies and plaques based on departmental overhead rates, where forming department overhead costs are allocated based on direct manufacturing labor costs of the forming department and assembly department overhead costs are allocated based on total direct costs of the assembly department. 3. Calculate the budgeted cost of trophies and plaques if Triumph allocates overhead costs in each department using activity-based costing. 4. Explain how the disaggregation of information could improve or reduce decision quality.

Answer 1

Part 1

	Trophies	Plaques	Total
Direct materials
Forming	26000	22500
Assembly	5200	18750
Total	31200	41250
Direct manufacturing labor
Forming	31200	18000
Assembly	15600	21000
Total	46800	39000
Total direct costs	78000	80250	158250

Budgeted overhead rate = (24000+20772+46000+21920)/158250 = 112692/158250 = 0.712114 per dollar of direct cost

	Trophies	Plaques	Total
Direct materials	31200	41250	72450
Direct manufacturing labor	46800	39000	85800
Total direct costs	78000	80250	158250
Allocated overhead (total direct cost * 0.712114)	55544	57148	112692
Total costs	133544	137398	270942

Part 2

Budgeted overhead rate Forming Department = Budgeted Forming Department overhead costs / Budgeted Forming Department direct manufacturing labor costs = (24000+20772)/(31200+18000) = 44772/49200 = $0.91 per Forming Department direct manufacturing labor dollar

Budgeted overhead rate Assembly Department = Budgeted Assembly Department overhead costs / Budgeted Assembly Department direct manufacturing labor costs = (46000+21920)/(5200+18750+15600+21000) = 67920/60550 = 1.121718 per Assembly Department direct cost dollar

	Trophies	Plaques	Total
Direct materials	31200	41250	72450
Direct manufacturing labor	46800	39000	85800
Total direct costs	78000	80250	158250
Allocated overhead
Forming department	28392	16380	44772
Assembly department	23332	44588	67920
Total costs	129724	141218	270942

	Trophies	Plaques	Total
Forming department
Direct manufacturing labor costs	31200	18000	49200
Allocated overhead (Direct manufacturing labor costs * 0.91)	28392	16380	44772
Assembly department
Total direct costs (5200+15600); (18750+21000)	20800	39750	60550
Allocated overhead (Total direct costs * 1.121718)	23332	44588	67920

Part 3

Forming department

Budgeted setup rate= $24,000/156 batches = $153.84615 per batch

Budgeted supervision rate= $20,772/$49,200 = $0.422195 per direct-labor dollar

Assembly department

Budgeted setup rate= $46,000/146 batches = $315.06849 per batch

Budgeted supervision rate= $21920/$36600 = $0.598907 per direct manuf.-labor dollar

	Trophies	Plaques	Total
Direct materials	31200	41250	72450
Direct manufacturing labor	46800	39000	85800
Total direct costs	78000	80250	158250
Allocated overhead
Forming department overhead
Set up (153.84615*40; 116)	6154	17846	24000
Supervision (0.422195*31200; 18000)	13172	7600	20772
Assembly department
Set up (315.06849*43; 103)	13548	32452	46000
Supervision (0.598907*15600; 21000)	9343	12577	21920
Total costs	120217	1507250	270942

Part 4

There decrease in cost of trophies and increase in cost of plaques with refining cost pools further. The proportion of cost drives used by the plaques is more than trophies. In case of traditional costing system, the direct costs which is used as the allocation base is smaller for plaques compared to trophies. Due to this plaques are undercosted and trophies are overcosted in that method. Moreover, the use of direct manufacturing labor is more in forming department and therefore the costs of plaques is relative more than trophies in case of department costing system. It is possible to improve costing decision making process due to the disaggregated information as it managers to understand the influence of various cost aspects on the total cost per unit. The disaggregate information is useful for pricing and product-mix decisions, process-improvement decisions, design decisions, cost reduction and, and to plan and manage activities. However too much disaggregation of information leads to confusion and may prove to be misleading.