Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter IE, Problem 13IE
1.
To determine
Introduction:
Step-down method: The
Allocation of the service department’s cost to the consuming department and the predetermined overhead rates in the operating department.
2.
To determine
Introduction:
Direct method: Under the direct method, the overhead costs incurred by the supporting department are directly allocated to the operating department.
Allocation of the service department’s cost to the consuming department using the direct method and the predetermined overhead rate.
3.
a.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The amount of overhead cost for the job using overhead rates computed in parts 1 and 2.
3.
b.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The reason the step-down method is a better base for computing the predetermined rates than the direct method.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Question 1: Support Department cost allocation
Computer Horizons Ltd. manufactures computers. The company has two corporate support
departments (legal and personnel) in supporting each other and two manufacturing
departments, the Laptop department and the Workstation department.
The overhead costs of support departments are allocated to the manufacturing departments.
Legal hours are used to allocate the cost of legal department, and personnel hours are used
to allocate the cost of personnel department. The budgeted overhead costs and cost
allocation bases are given below:
Support Departments
Manufacturing Departments
Legal
Personnel
Laptop
Workstation
Overhead Costs before any
inter department cost
allocations
$9,055
$4,000
$240,000
$200,000
Support Work provided by
Legal Department
Legal hours
3
37
Support work provided by
Personnel Department
Personnel hours
40
30
200
160
Required:
Report the total costs of the manufacturing departments (Laptop and Workstation) after the
support…
Direct Method of Support Department Cost Allocation
Chekov Company has two support departments, Human Resources and General
Factory, and two producing departments, Fabricating and Assembly.
Direct costs
Normal activity:
Number of employees
Square footage
Support Departments
Producing Departments
Human
Resources
$160,000
General
Factory
$360,000
Fabricating
Assembly
$114,200
$95,000
60
45
80
1,500
6,000
14,000
The costs of the Human Resources Department are allocated on the basis of number
of employees, and the costs of General Factory are allocated on the basis of square
footage. Chekov Company uses the direct method of support department cost
allocation.
Required:
1. Calculate the allocation ratios for the four departments using the direct method.
If an amount is zero, enter "0". Round your answer to the nearest cent.
Proportion of Driver Used by
Human Resources
Human Resources
General Factory
General Factory
Fabricating
Assembly
2. Using the direct method, allocate the costs of the…
Support department cost allocation—sequential method
Crystal Scarves & Co. produces winter scarves. The scarves are produced in the Cutting and Sewing departments. The Maintenance and Security departments support these production departments, and allocate costs based on machine hours and square feet, respectively. Information about each department is provided in the following table:
Department
Total Cost
Number of Employees
Machine Hours
Square Feet
Maintenance Department
$ 2,300
6
57
800
Security Department
3,000
4
0
600
Cutting Department
19,600
20
3,700
3,200
Sewing Department
20,800
18
5,550
4,000
Using the sequential method and allocating the support department with the highest costs first, allocate all support department costs to the production departments. Then compute the total cost of each production department.…
Knowledge Booster
Similar questions
- Flowchart of accounts related to service and processing departments Alcoa Inc. (AA) is the worlds largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling Department. Part of the fully processed goods from the Rolling Department are sold as rolled sheet, and the remainder of the goods are transferred to the Converting Department for further processing into sheared sheet. Prepare a chart of the flow of costs from the processing department accounts into the finished goods accounts and then into the cost of goods sold account. The relevant accounts are as follows:arrow_forwardActivity-Based Department Rate Product Costing and Product Cost Distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor $400,400 Subassembly Department 198,800 Final Assembly Department 114,800 Total $714,000 The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Budgeted Activity Cost Activity Base Setup $138,600 Number of setups Quality control 261,800 Number of inspections Total $400,400 The activity-base usage quantities and units produced for the two products follow: Number of Setups Number of Inspections Direct Labor Hours—Subassembly Direct Labor Hours—Final Assembly Units Produced Receivers 80 450 875 525 7,000…arrow_forwardActivity-Based Department Rate Product Costing and Product Cost Distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor $400,400 Subassembly Department 198,800 Final Assembly Department 114,800 Total $714,000 The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Budgeted Activity Cost Activity Base Setup $138,600 Number of setups Quality control 261,800 Number of inspections Total $400,400 The activity-base usage quantities and units produced for the two products follow: Number of Setups Number of Inspections Direct Labor Hours—Subassembly Direct Labor Hours—Final Assembly Units Produced Receivers 80 450 875 525 7,000…arrow_forward
- Activity-Based Department Rate Product Costing and Product Cost Distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor $400,400 Subassembly Department 198,800 Final Assembly Department 114,800 Total $714,000 The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity Budgeted Activity Cost Activity Base Setup $138,600 Number of setups Quality control 261,800 Number of inspections Total $400,400 The activity-base usage quantities and units produced for the two products follow: Number of Setups Number of Inspections Direct Labor Hours—Subassembly Direct Labor Hours—Final Assembly Units Produced Receivers 80 450 875 525 7,000…arrow_forwardDirect Method of Support Department Cost Allocation Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Support Departments Producing Departments HumanResources GeneralFactory Fabricating Assembly Direct costs $170,000 $350,000 $114,800 $95,000 Normal activity: Number of employees — 60 80 170 Square footage 1,000 — 5,700 13,300 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Valron Company uses the direct method of support department cost allocation. Required:arrow_forward- Chapter Four Activity Cost Pool Machining Machine setups Production design General factory Activity Measure Machining Required information Greenwood Company manufactures two products-13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity- based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: Number of setups Number of products Direct labor-hours Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Activity rate Saved Product Y Product Z 8,800 3,200 240 40 1 1 8,800 3,200 5. What is the activity rate for the Product Design activity cost pool? per product Savearrow_forward
- Support Department Cost Allocation—Reciprocal Services Method Blue Africa Inc. produces laptops and desktop computers. The company’s production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the company’s production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is $242,000. The total cost of the Cafeteria Department is $490,000. The number of employees and the square footage in each department are as follows: Employees Square Feet Security Department 10 520 Cafeteria Department 28 2,400 Laser Department 40 3,200 Forming Department 50 2,400 Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and…arrow_forwardSupport Department Cost Allocation—Reciprocal Services Method Blue Africa Inc. produces laptops and desktop computers. The company’s production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the company’s production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is $267,000. The total cost of the Cafeteria Department is $240,000. The number of employees and the square footage in each department are as follows: Employees Square Feet Security Department 10 550 Cafeteria Department 28 2,400 Laser Department 40 4,800 Forming Department 50 800 Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and to…arrow_forwardActivity-based product costing Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Production Setup Inspection Shipping Customer Service Total Budgeted Activity Cost $435,000 237,000 107,800 122,100 80,400 $982,300 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer Service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Machine Number of Hours Setups Number of Inspections Number of Customer Orders Customer…arrow_forward
- Sequential (Step) Method of Support Department Cost Allocation Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Direct costs Normal activity: Number of employees Square footage Support Departments Producing Departments Human Resources General Factory Fabricating Assembly $150,000 $360,000 $120,900 $86,000 1,500 60 45 80 6,000 14,000 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Chekov Company uses the sequential method to allocate support department costs. The support departments are ranked in order of highest cost to lowest cost. Required: 1. Calculate the allocation ratios (rounded to six significant digits) for the four departments using the sequential method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. Proportion…arrow_forwardSingle plantwide and Multiple production department factory overhead rate methods and product cost distortion Instructions Single Plantwide Method Multiple Production Department Method Final Questions X Instructions The management of Firebolt Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Firebolt: 1 Fabrication Department factory overhead $557,750.00 2 Assembly Department factory overhead 257,550.00 3 Total $815,300.00 Direct labor hours were estimated as follows:…arrow_forwardeBook Activity-Based Product Costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Cost Pool Production $259,200 Setup 55,000 Materials handling 9,750 Inspection 60,000 Product engineering 123,200 Total $507,150 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Materials handling Number of parts Inspection Number of inspection hours Product engineering Number of engineering hours The activity-base usage quantities and units produced for the three products were determined from corporate records and are as…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,