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Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Direct Labor Hours Production Allocation Base Department A B BUD с Total A B C D Total Production Department (Percent) 20% 25 20 35 100% $ Cost Allocation Based on Direct Labor Hours S Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the pric of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. Cost Allocation Based on Direct 83,600 125,400 41,800 167,200 418,000 Labor Hours $ 83,600 125,400 41,800 167,200 $ 418,000 Outside Price Cost Allocation Based on Outside Prices $ 123,750 99,000 74,250 198,000 $ 495,000

Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Direct Labor Hours Production Allocation Base Department A B BUD с Total A B C D Total Production Department (Percent) 20% 25 20 35 100% $ Cost Allocation Based on Direct Labor Hours S Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the pric of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. Cost Allocation Based on Direct 83,600 125,400 41,800 167,200 418,000 Labor Hours $ 83,600 125,400 41,800 167,200 $ 418,000 Outside Price Cost Allocation Based on Outside Prices $ 123,750 99,000 74,250 198,000 $ 495,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 3QTD
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Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose elther to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Production Department A no: B с D Total A B C D Total Production Department Direct Labor Hours Allocation Base (Percent) 20% 25 20 35 100% Cost Allocation Based on Direct Labor Hours $ Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. $ Cost Allocation Based on Direct 83,600 125,400 41,800 167,200 418,000 Labor Hours $ 83,600 125,400 41,800 167,200 $ 418,000 Outside Price Cost Allocation Based on Outside Prices $ 123,750 99,000 74,250 198,000 $ 495,000
Transcribed Image Text:Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose elther to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Production Department A no: B с D Total A B C D Total Production Department Direct Labor Hours Allocation Base (Percent) 20% 25 20 35 100% Cost Allocation Based on Direct Labor Hours $ Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. $ Cost Allocation Based on Direct 83,600 125,400 41,800 167,200 418,000 Labor Hours $ 83,600 125,400 41,800 167,200 $ 418,000 Outside Price Cost Allocation Based on Outside Prices $ 123,750 99,000 74,250 198,000 $ 495,000
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