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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Brief Exercises 4-27 and 4-28:

Quillen Company manufactures a product in a factory that has two producing departments, Cutting and Sewing, and two support departments, S1 and S2. The activity driver for S1 is number of employees, and the activity driver for S2 is number of maintenance hours. The following data pertain to Quillen:

Chapter 4, Problem 27BEA, Use the following information for Brief Exercises 4-27 and 4-28: Quillen Company manufactures a

Brief Exercises 4-27 (Appendix 4B) Assigning Support Department Costs by Using the Direct Method

Refer to the information for Quillen Company above.

Required:

1. Calculate the cost assignment ratios to be used under the direct method for Departments S1 and S2. (Note: Each support department will have two ratios—one for Cutting and the other for Sewing.)

2. Allocate the support department costs to the producing departments by using the direct method.

1.

To determine

Computecost assignment ratios to be used under S1 and S2 departments.

Explanation

Direct Method:

Direct method implies that the unit cost must include all the factory costs. It states that the cost of support departments should not be added in the unit cost if it is not included in producing departments’ costbecause they do not play any role in selling the unit or product.

Use the following formula to calculate assignment ratios for Department S1 on the basis of number of employees:

Cutting department:

Cutting=NumberofemployeesincuttingTotalemployeesinproducingdepartments

Substitute 63 for number of employees in cutting and 210 for total employees in producing department in the above formula.

Cutting=63employees210employees=0.30

Therefore, the assignment ratio for cutting department is 0.30.

Sewing department:

Sewing=NumberofemployeesinsewingTotalemployeesinproducingdepartments

Substitute 147 for number of employees in cutting and 210 for total employees in producing department in the above formula.

Sewing=147employees210employees=0.70

Therefore, the assignment ratio for sewing department is 0.70.

Use the following formula to calculate assignment ratios for Department S2 on the basis of number of maintenance hours:

Cutting department:

Cutting=Numberofmaintenance hoursofcuttingTotalmaintenance hoursofproducingdepartments

Substitute 16,000 for number of maintenance hoursof cutting and 20,000 for total maintenance hours of producing department in the above formula.

Cutting=16,000hours20,000hours=0

2.

To determine

Apportion support department costs to the producing departments using direct method:

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