Question 14 The following information pertains to Blaze Company: Service Departm
ID: 2562558 • Letter: Q
Question
Question 14
The following information pertains to Blaze Company:
Service Departments
Producing Departments
Personnel
Maintenance
Fabrication
Assembly
Budgeted overhead
$160,000
$300,000
$280,000
$320,000
Direct labor-hours
2,000
2,500
8,000
10,000
Machine-hours
12,000
8,000
Number of employees
4
5
15
25
Blaze Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine-hours. Predetermined overhead rates for Fabrication and Assembly are based on direct labor-hours (round amounts to dollars).
If the direct method is used to allocate service department costs, the predetermined overhead rate for the Fabrication Department (rounded to 2 decimal places) would be:
A.
$64.10
B.
$69.55
C.
$65.00
D.
$42.00
Premier Painting Services, Inc. provides residential painting services for three home building companies, Glendale, Highwood, and Lexington, and it uses a job costing system for determining the costs for completing each job. The job cost system does not capture any cost incurred by Premier for return touch-ups and refinishes after the homeowner occupies the home. Premier paints each house on a square footage contract price, which includes painting as well as all refinishes and touch-ups required after the homes are occupied.
Each year, the company generates about one-third of its total revenues and gross profits from each of the three builders. The Premier owner has observed that the builders, however, require substantially different levels of support following the completion of jobs.
The following data have been gathered
Support Activity
Driver
Cost per Driver Unit
Major refinishes
Hours on jobs
$40
Touch-ups
Number of visits
$60
Communication
Number of calls
$12
Builder
Major Refinishes
Touch-ups
Communication
Glendale
70
125
39
Highwood
125
105
180
Lexington
305
180
175
Assume that each of the three customers produces Gross Profit of $50,000.
The profitability from each builder after taking into account the support activity required for each builder is:
A.
$40,140 Glendale, $35,540 Highwood, $36,540 Lexington
B.
$36,040 Glendale, $40,140 Highwood, $35,540 Lexington
C.
$35,540 Glendale, $40,140 Highwood, $36,040 Lexington
D.
$40,000 Glendale, $65,000 Highwood, $38,000 Lexington
Service Departments
Producing Departments
Explanation / Answer
1. To solve these type of numericals, we have to first allocate the cost of service departments to the producing departments.
- So, we firstly allocate the Cost of personnel department to the fabrication department:
Budgeted overhead for personnel department = $160,000.
Number of employees in producing departments = 15 + 25 = 40
Allocation to fabrication department = 160,000 / 40 x 15 = $60,000
- Now, allocate the Cost of maintenance department to the fabrication department:
Budgeted overhead for maintenance department = $300,000.
Number of machine hours in producing departments = 12,000 + 8,000 = 20,000
Allocation to fabrication department = 300,000 / 20,000 x 12,000 = $180,000
Total cost for fabrication department = 280,000 + 60,000 + 180,000 = $520,000
Direct labour hours in fabrication department = 8,000
So, predetermined overhead rate for fabrication department = 520,000 / 8,000 = $65.00
Hence, C is the correct option.
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