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Question 2: Support Department Cost allocation and Job Costing Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total overhead costs of manufacturing departments after the support departments' cost have been allocated under three cost allocation methods. Machining Department Cost $ 8,650,000 $ 8,500,000 $9,000,000 Assembly Department Cost $ 7,350,000 $ 7,500,000 $ 7,000,000 Cost Allocation Method Direct Method Step-down Method Reciprocal Method Management of the company has decided that it will achieve the most appropriate job costs by using individual manufacturing department overhead rates to allocate the overhead costs to the jobs. These rates are developed after support-department costs are allocated to manufacturing departments. The company uses normal costing. Machining department's cost is allocated on the basis of machine hours and Assembly department's cost is allocated based on labour hours. The budgeted labour hour and machine hours for the two manufacturing departments are presented below. Manufacturing Departments Machining Department Assembly Department Machine Hours Labour Hours 200,000 80,000 15,000 35,000 Required: (a) Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments' costs to the manufacturing departments. Assembly $6,710 $1,650 Job no. MT27 Machining $36,000 $1,550 Direct materials Direct labour cost Direct labour hours 45 70 Machine Hours 210 20 (b) 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 allocation method would you prefer to allocate support department's costs to manufacturing departments?

Question 2: Support Department Cost allocation and Job Costing Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total overhead costs of manufacturing departments after the support departments' cost have been allocated under three cost allocation methods. Machining Department Cost $ 8,650,000 $ 8,500,000 $9,000,000 Assembly Department Cost $ 7,350,000 $ 7,500,000 $ 7,000,000 Cost Allocation Method Direct Method Step-down Method Reciprocal Method Management of the company has decided that it will achieve the most appropriate job costs by using individual manufacturing department overhead rates to allocate the overhead costs to the jobs. These rates are developed after support-department costs are allocated to manufacturing departments. The company uses normal costing. Machining department's cost is allocated on the basis of machine hours and Assembly department's cost is allocated based on labour hours. The budgeted labour hour and machine hours for the two manufacturing departments are presented below. Manufacturing Departments Machining Department Assembly Department Machine Hours Labour Hours 200,000 80,000 15,000 35,000 Required: (a) Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments' costs to the manufacturing departments. Assembly $6,710 $1,650 Job no. MT27 Machining $36,000 $1,550 Direct materials Direct labour cost Direct labour hours 45 70 Machine Hours 210 20 (b) 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 allocation method would you prefer to allocate support department's costs to manufacturing departments?

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter4: Job-order Costing And Overhead Application
Section: Chapter Questions
Problem 27BEA: Use the following information for Brief Exercises 4-27 and 4-28: Quillen Company manufactures a...
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Question 2: Support Department Cost allocation and Job Costing Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total overhead costs of manufacturing departments after the support departments' cost have been allocated under three cost allocation methods. Machining Department Cost $ 8,650,000 $ 8,500,000 $ 9,000,000 Assembly Department Cost $ 7,350,000 $ 7,500,000 $ 7,000,000 Cost Allocation Method Direct Method Step-down Method Reciprocal Method Management of the company has decided that it will achieve the most appropriate job costs by using individual manufacturing department overhead rates to allocate the overhead costs to the jobs. These rates are developed after support-department costs are allocated to manufacturing departments. The company uses normal costing. Machining department's cost is allocated on the basis of machine hours and Assembly department's cost is allocated based on labour hours. The budgeted labour hour and machine hours for the two manufacturing departments are presented below. Manufacturing Departments Machining Department Assembly Department Machine Hours Labour Hours 200,000 80,000 15,000 35,000 Required: (a) Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments' costs to the manufacturing departments. Assembly $6,710 $1,650 Job no. MT27 Machining $36,000 $1,550 Direct materials Direct labour cost Direct labour hours 45 70 Machine Hours 210 20 (b) 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 allocation method would you prefer to allocate support department's costs to manufacturing departments?
Transcribed Image Text:Question 2: Support Department Cost allocation and Job Costing Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total overhead costs of manufacturing departments after the support departments' cost have been allocated under three cost allocation methods. Machining Department Cost $ 8,650,000 $ 8,500,000 $ 9,000,000 Assembly Department Cost $ 7,350,000 $ 7,500,000 $ 7,000,000 Cost Allocation Method Direct Method Step-down Method Reciprocal Method Management of the company has decided that it will achieve the most appropriate job costs by using individual manufacturing department overhead rates to allocate the overhead costs to the jobs. These rates are developed after support-department costs are allocated to manufacturing departments. The company uses normal costing. Machining department's cost is allocated on the basis of machine hours and Assembly department's cost is allocated based on labour hours. The budgeted labour hour and machine hours for the two manufacturing departments are presented below. Manufacturing Departments Machining Department Assembly Department Machine Hours Labour Hours 200,000 80,000 15,000 35,000 Required: (a) Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments' costs to the manufacturing departments. Assembly $6,710 $1,650 Job no. MT27 Machining $36,000 $1,550 Direct materials Direct labour cost Direct labour hours 45 70 Machine Hours 210 20 (b) 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 allocation method would you prefer to allocate support department's costs to manufacturing departments?
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