Azzuma Printing Enterprise (APE) provides variety of printing services and binding works. The printing and binding departments are supported by three supporting departments which are the Human Resources, Procurement and Maintenance departments. The costs of these supporting departments are allocated to other departments based on the sequence of the departments as in the table below: Departments’ Sequence Total Labour Square Feet of Space Number Of Employee Machine Hours Direct Labour 1. Human resource 20,000 4,000 10 2. Procurement 30,000 6,000 15 3. Maintenance 50,000 20,000 25 4. Printing 90,000 80,000 40 150,000 60,000 5. Binding 260,000 40,000 120 30,000 175,000 Total 450,000 150,000 210 180,000 235,000 Budgeted overhead costs for each department for year 2022 are shown below: Departments Overhead Costs (RM) Human resource 360,000 Procurement 141,000 Maintenance 201,000 Printing 525,000 Binding 373,500 Total 1,600,500 For overhead allocation purpose, the human resource department’s cost is allocated to other departments based on the number of employees in that department while the procurement cost is allocated based on the square feet of space occupied, and the maintenance cost is allocated based on the number of machine hours used by the departments. REQUIRED: a) Allocate the support departments costs to the other departments using the sequential method. b) Compute the pre-determined overhead rate for year 2022 and determine the amount of overhead cost assigned to a job if printing department used 15,400 machine hours and binding department used 2,000 of direct labour hours. The allocation based for printing department is machine hours and the allocation based for binding department is direct labour hours. c) Explain why the sequential method is considered as more accurate compared to the direct method in allocating service department costs to production departments.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Azzuma Printing Enterprise (APE) provides variety of printing services and binding works. The printing and binding departments are supported by three supporting departments which are the Human Resources, Procurement and Maintenance departments. The costs of these supporting departments are allocated to other departments based on the sequence of the departments as in the table below:
|
Departments’ Sequence |
Total Labour |
Square Feet of Space |
Number Of Employee |
Machine Hours |
Direct Labour |
|
1. Human resource |
20,000 |
4,000 |
10 |
|
|
|
2. Procurement |
30,000 |
6,000 |
15 |
|
|
|
3. Maintenance |
50,000 |
20,000 |
25 |
|
|
|
4. Printing |
90,000 |
80,000 |
40 |
150,000 |
60,000 |
|
5. Binding |
260,000 |
40,000 |
120 |
30,000 |
175,000 |
|
Total |
450,000 |
150,000 |
210 |
180,000 |
235,000 |
Budgeted overhead costs for each department for year 2022 are shown below:
Departments Overhead Costs (RM)
|
Human resource |
360,000 |
|
Procurement |
141,000 |
|
Maintenance |
201,000 |
|
Printing |
525,000 |
|
Binding |
373,500 |
|
Total |
1,600,500 |
For overhead allocation purpose, the human resource department’s cost is allocated to other departments based on the number of employees in that department while the procurement cost is allocated based on the square feet of space occupied, and the maintenance cost is allocated based on the number of machine hours used by the departments.
REQUIRED:
a) Allocate the support departments costs to the other departments using the sequential method.
b) Compute the pre-determined overhead rate for year 2022 and determine the amount of overhead cost assigned to a job if printing department used 15,400 machine hours and binding department used 2,000 of direct labour hours. The allocation based for printing department is machine hours and the allocation based for binding department is direct labour hours.
c) Explain why the sequential method is considered as more accurate compared to the direct method in allocating service department costs to production departments.
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