chapter7 probiem-3 Chegg Study TEXTBOOK SOLUTIONS EXPERT O&A; «D-Q study with Te
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chapter7 probiem-3 Chegg Study TEXTBOOK SOLUTIONS EXPERT O&A; «D-Q study with Textbook Solutions on-the-go E GET CHEGG STU ome study / business / accounting / accounting solutions manuals / cost management a strategic emphasis /7th edition Cost Management: A Strategic Emphasis |(7th Edition) E Chapter 7, Problem 35P Show all steps. OMD Bookmark Problem Departmental Cost Allocation Logan Products has two production departments-assembly and finishing. These are supported by two service departments -sourcing (purchasing and handling of raw materials and human resources) and operations (work scheduling, supervision, and inspection). Logan has the following labor hours devoted by each of the service departments to the other departments. Total Labor Hours Used by Departments Sourcing Operations Assembly Finishing 20,000 40,000 0,000 50,000 0,000 Sourcing Operations 10,000 The costs incurred in the plant are as follows Departmental Costs $165,000 205,000 10,000 255,000 1,035,000 Departments Sourcing Operations Assembly Finishing Total Required Use 4 or more decral places (e g.. 33 3333%) in your calculations. 1. What are the costs allocated to the two production departments using (a) the direct method (b) the step method (with the sourcing department going first), and (C) the reciprocal method? 2. What are the total costs in the production departments after allocation?Explanation / Answer
Answer 1(a) & 2(a) Service Department Cost Allocation Statement Under Direct Method Service Production Sourcing Operations Assembly Finishing Overhead Costs 165,000 205,000 410,000 255,000 Allocation of Sourcing (165,000) 66,000 99,000 Allocation of Operations (205,000) 111,818 93,182 Total Allocated Costs - - 587,818 447,182 Allocation of Sourcing Assembly - $165,000 X 40,000 / 100,000 66,000 Finishing - $165,000 X 60,000 / 100,000 99,000 . Allocation of Operations Assembly - $205,000 X 60,000 /110,000 111,818 Finishing - $205,000 X 50,000 / 110,000 93,182 Answer 1(b) & 2(b). Service Department Cost Allocation Statement Under Step Down Method (Allocate Sourcing First) Service Production Sourcing Operations Assembly Finishing Overhead Costs 165,000 205,000 410,000 255,000 Allocation of Sourcing (165,000) 27,500 55,000 82,500 Allocation of Operations (232,500) 126,818 105,682 Total Allocated Costs - - 591,818 443,182 Allocation of Sourcing Operations - $165,000 X 20,000 / 120,000 27,500 Assembly - $165,000 X 40,000 / 120,000 55,000 Finishing - $165,000 X 60,000 / 120,000 82,500 Allocation of Operations Assembly - $232,500 X 60,000 /110,000 126,818 Finishing - $232,500 X 50,000 / 110,000 105,682 Answer 1© & 2(c). Express Service department budgeted costs and reciprocal relationships in the form of linear equations: Equation 1 - Sourcing = $165,000 + 0.08333 Operations Equation 2 - Operations = $205,000 + 0.1667 Sourcing Putting Equation 1 in Equation 2, we get Operations = $205,000 + 0.1667 X ($165,000 + 0.08333 Operations) IT = $205,000 + 27,500 + 0.01369 Operations Operations = IT = 235,775 (Approx.) Putting value of IT in Equation 1, we get Sourcing = $165,000 + 0.08333 X $235,775 Sourcing = $184,648 (approx.) Now, Allocating Service Department Cost to Production Departments using Reciprocal Method: Service Production Sourcing Operations Assembly Finishing Overhead Costs 165,000 205,000 410,000 255,000 Allocation of Sourcing - 20:40:60 (184,648) 30,775 61,549 92,324 Allocation of Operations - 10:60:50 19,648 (235,775) 117,887 98,240 Total Allocated Costs - - 589,436 445,564
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