Required Information[The following Information applies to the questions displayed below.]Tennessee Company manufactures a specialized fitting for Industrial machinery at the Stephens Street Facility. The facilityhas five departments. Two departments (Casting and Finishing) are production departments. The other three departments(Purchasing, Human Resources, and Information Technology) are considered service departments. The accumulated costsIn the three service departments in the most recent period were $100,000, $160,000, and $80,000, respectively. Thecorporate management at Tennessee as been concerned that the costs of the service departments are getting too high.As a result, the plant manager has been told that the bonus payments to plant management (the plant manager and thefive department managers) will not be paid if the cost of the allocated service departments is above $9.75 per unit inelther production department.The product costing system at the plant currently uses the step method of service department cost allocation, althoughthat is a decision choice of the plant controller. Information Technology (IT) costs are allocated first, followed by HumanResources (HR), and then Purchasing. IT costs are allocated on the basis of "IT calls" (requests for service). HR costs areallocated on the basis of employees. Purchasing costs are allocated on the basis of purchase orders (POS). The use ofeach base by all departments during the most recent period follows:Allocation BasePurchase ordersEmployeesIT callsPurchasing500989,600HumanResources7601004,800Used byInformationTechnology1,14018030,000Casting6,08031539,600Finishing1,52031566,000Direct costs of the Casting Department (including department overhead, but before allocation of any service departmentcosts) were $450,000 in the most recent period. Direct costs in the Finishing Department (again Including departmentoverhead, but before allocation of any service department costs) were $525,000.Required:a. Using the current system for allocating service department costs, determine the allocated costs and the total costs in each of the two producing departments (Casting and Finishing). (Hint: Ignore any of its own services by a service department.)b. Assume that 20,000 units were processed through these two departments in the most recent period. What is the per-unit allocated service department cost for each of the two production departments?c. Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated? Explain.Repeat the analysis in requirement (a) assuming the Stephens Street facility uses the direct method to allocate service department costs.Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated and the direct method is used to allocate service department costs? Explain.f. Prepare a short report to corporate managers on your assessment of the effectiveness of the bonus plan as a means to control service department costs. Use any visualizations that illustrate your points.

Answered: Image /qna-images/answer/b11be3a3-9b45-48c6-86c2-55200383197f.jpg

Required Information [The following information applies to the questions displayed below] Tennessee Company manufactures a specialized fitting for Industrial machinery at the Stephens Street Facility. The facility has five departments. Two departments (Casting and Finishing) are production departments. The other three departments (Purchasing. Human Resources, and Information Technology) are considered service departments. The accumulated costs in the three service departments in the most recent period were $100,000, $160,000, and $80,000, respectively. The corporate management at Tennessee as been concerned that the costs of the service departments are getting too high. As a result, the plant manager has been told that the bonus payments to plant management (the plant manager and the five department managers) will not be paid if the cost of the allocated service departments is above $9.75 per unit in either production department. The product costing system at the plant currently uses the step method of service department cost allocation, although that is a decision choice of the plant controller. Information Technology (IT) costs are allocated first, followed by Human Resources (HR), and then Purchasing. IT costs are allocated on the basis of "IT calls" (requests for service). HR costs are allocated on the basis of employees. Purchasing costs are allocated on the basis of purchase orders (POS). The use of each base by all departments during the most recent period follows: Allocation Base Purchase orders Employees IT calls Purchasing see 90 9,600 Human Resources 760 100 4,800 Used by Information Technology 1,140 180 30,000 Casting 6,080 315 39,600 Finishing 1,520 315 66,000 Direct costs of the Casting Department (including department overhead, but before allocation of any service department costs) were $450,000 in the most recent period. Direct costs in the Finishing Department (again Including department overhead, but before allocation of any service department costs) were $525,000. Required: a. Using the current system for allocating service department costs, determine the allocated costs and the total costs in each of the two producing departments (Casting and Finishing). (Hint: Ignore any of its own services by a service department) b. Assume that 20,000 units were processed through these two departments in the most recent period. What is the per-unit allocated service department cost for each of the two production departments? c. Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated? Explain.

Required Information [The following information applies to the questions displayed below] Tennessee Company manufactures a specialized fitting for Industrial machinery at the Stephens Street Facility. The facility has five departments. Two departments (Casting and Finishing) are production departments. The other three departments (Purchasing. Human Resources, and Information Technology) are considered service departments. The accumulated costs in the three service departments in the most recent period were $100,000, $160,000, and $80,000, respectively. The corporate management at Tennessee as been concerned that the costs of the service departments are getting too high. As a result, the plant manager has been told that the bonus payments to plant management (the plant manager and the five department managers) will not be paid if the cost of the allocated service departments is above $9.75 per unit in either production department. The product costing system at the plant currently uses the step method of service department cost allocation, although that is a decision choice of the plant controller. Information Technology (IT) costs are allocated first, followed by Human Resources (HR), and then Purchasing. IT costs are allocated on the basis of "IT calls" (requests for service). HR costs are allocated on the basis of employees. Purchasing costs are allocated on the basis of purchase orders (POS). The use of each base by all departments during the most recent period follows: Allocation Base Purchase orders Employees IT calls Purchasing see 90 9,600 Human Resources 760 100 4,800 Used by Information Technology 1,140 180 30,000 Casting 6,080 315 39,600 Finishing 1,520 315 66,000 Direct costs of the Casting Department (including department overhead, but before allocation of any service department costs) were $450,000 in the most recent period. Direct costs in the Finishing Department (again Including department overhead, but before allocation of any service department costs) were $525,000. Required: a. Using the current system for allocating service department costs, determine the allocated costs and the total costs in each of the two producing departments (Casting and Finishing). (Hint: Ignore any of its own services by a service department) b. Assume that 20,000 units were processed through these two departments in the most recent period. What is the per-unit allocated service department cost for each of the two production departments? c. Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated? Explain.

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter4: Accounting For Factory Overhead

Section: Chapter Questions

Problem 9E: A manufacturing company has two service and two production departments. Human Resources and Machine...

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