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Concept explainers
Support-department cost allocations; single-department cost pools; direct, step-down, and reciprocal methods. The Martinez Company has two products. Product 1 is manufactured entirely in department X. Product 2 is manufactured entirely in department Y. To produce these two products, the Martinez Company has two support departments: A (a materials-handling department) and B (a power-generating department).
An analysis of the work done by departments A and B in a typical period follows:
Used by | ||||
Supplied by | A | B | X | Y |
A | — | 400 | 1,000 | 600 |
B | 1,500 | — | 250 | 750 |
The work done in department A is measured by the direct labor-hours of materials-handling time. The work done in department B is measured by the kilowatt-hours of power. The budgeted costs of the support departments for the coming year are as follows:
Department A (Materials Handling) | Department B (Power Generation) | |
Variable indirect labor and indirect materials costs | $300,000 | $ 30,000 |
Supervision | 90,000 | 50,000 |
30,000 | 100,000 | |
$420,000 | $180,000 | |
+ Power costs | + Materials-handling costs |
The budgeted costs of the operating departments for the coming year are $2,500,000 for department X and $1,900,000 for department Y.
Supervision costs are salary costs. Depreciation in department B is the straight-line depreciation of power-generation equipment in its 19th year of an estimated 25-year useful life; it is old, but well-maintained, equipment.
- 1. What are the allocations of costs of support departments A and B to operating departments X and Y using (a) the direct method, (b) the step-down method (allocate department A first), (c) the step-down method (allocate department B first), and (d) the reciprocal method?
- 2. An outside company has offered to supply all the power needed by the Martinez Company and to provide all the services of the present power department. The cost of this service will be $80 per kilowatt-hour of power. Should Martinez accept? Explain.
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Chapter 15 Solutions
EBK HORNGREN'S COST ACCOUNTING
- A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forwardPelder Products Company manufactures two types of engineering diagnostic equipment used in construction. The two products are based upon different technologies, X-ray and ultrasound, but are manufactured in the same factory. Pelder has computed the manufacturing cost of the X-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows: Pelders budgeted manufacturing activities and costs for the period are as follows: The budgeted cost to manufacture one ultrasound machine using the activity-based costing method is: a. 225. b. 264. c. 293. d. 305.arrow_forwardLacy, Inc., produces a subassembly used in the production of hydraulic cylinders. The subassemblies are produced in three departments: Plate Cutting, Rod Cutting, and Welding. Materials are added at the beginning of the process. Overhead is applied using the following drivers and activity rates: Other data for the Plate Cutting Department are as follows: Required: 1. Prepare a physical flow schedule. 2. Calculate equivalent units of production for: a. Direct materials b. Conversion costs 3. Calculate unit costs for: a. Direct materials b. Conversion costs c. Total manufacturing 4. Provide the following information: a. The total cost of units transferred out b. The journal entry for transferring costs from Plate Cutting to Welding c. The cost assigned to units in ending inventoryarrow_forward
- Classify the following cost drivers as structural, executional, or operational. a. Number of plants b. Number of moves c. Degree of employee involvement d. Capacity utilization e. Number of product lines f. Number of distribution channels g. Engineering hours h. Direct labor hours i. Scope j. Product configuration k. Quality management approach l. Number of receiving orders m. Number of defective units n. Employee experience o. Types of process technologies p. Number of purchase orders q. Type and efficiency of layout r. Scale s. Number of functional departments t. Number of planning meetingsarrow_forwardMeester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense $ 81,300 Supervisory expense $ 2,200 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment expense 0.50 0.30 0.20 Supervisory expense 0.50 0.20 0.30 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product M0 1,630…arrow_forwardMeester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 79,800 Supervisory expense $ 4,900 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.40 0.30 0.30 Supervisory expense 0.40 0.20 0.40 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product…arrow_forward
- The Woodridge Manufacturing Company has two Production Departments: Cutting and Pasting. Each of these two departments uses the services provided by the Computing and Maintenance Departments, which both support the production functions and each other’s functions as well. Woodridge uses the step method of allocating these service department costs to the production departments. Computing is allocated on the basis of hours of department operations and Maintenance is allocated on the basis of departmental direct labor hours. Last period the following costs were recorded: Cutting Department overhead $400,000 Pasting Department overhead $600,000 Computing Department total costs $700,000 Maintenance Department total costs $300,000 Production Department data: Cutting Pasting Computing Maintenance Hours of operation 5,000 7,500 15,000 2,500 Direct labor hours recorded 4,000 8,000 4,000 8,000 Required: a. Determine the…arrow_forwardMeester Corporation has an activity-based costing system with three activity cost pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense Supervisory expense Distribution of Resource Consumption Across Activity Cost Pools: Equipment expense Supervisory expense $80, 400 $ 4, 100 Product MO Product H2 Total Activity Cost Pools Machining Order Filling 0.60 0.60 MHS (Machining) 1,300 9,540 10,840 Machining costs are assigned to products using machine-hours (MHS) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: 0.20 0.10 Orders (Order Filling) 790 1,480 2,270 Other 0.20 0.30…arrow_forwardMultiple Choice $37,578 $12,230 $16,940 $60,340arrow_forward
- Kiser Corporation pools--Machining, has an activity-based costing system with three activity cost Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation Supervisory expense Equipment depreciation Distribution of Resource Consumption Across Activity Cost Pools: Supervisory expense Product MO Product H2 Total Activity Cost Pools O $60,000 O $800 O $10,400 O $9.600 0.30 Machining Order Filling 0.60 0.10 4,500 $ 96,000 0.10 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: 5,500 $ 8,000 MHS (Machining) 10,000 400 Other 600 0.60…arrow_forwardMeester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 78,000 Supervisory expense $ 2,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.40 0.10 0.50 Supervisory expense 0.50 0.10 0.40 Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product…arrow_forwardLysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs--equipment depreciation and supervisory expense-are allocated to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below: Overhead costs: Equipment depreciation $ 47,000 Supervisory expense $ 6,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.60 0.10 0.30 Supervisory expense 0.60 0.20 0.20 In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product C9 6,900 200…arrow_forward
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