allocation base )

cafeteria : number of employees

custodial servie : space occupied

machinery maintenance : machine hours

COST ACCOUNTING Severson Products "I can't understand what's happening here," said Mike Holt, president of Severson Products, Inc., We always seem to bid too high on jobs that require a lot of labor time in the Finishing Department, and we always seem to get every job we bid on that requires a lot of machine time in the Milling Department. Yet we don't seem to be marking much money on those Milling Department jobs. I wonder if the problem is in our overhead rates". Severson Products manufactures high-quality wood products to customers' specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand finishing work in the Finishing Department. In addition to the Milling and Finishing departments, the company has three service departments. The costs of these service departments are allocated to the other departments in the order listed below: (For each service department, use the most appropriate allocation base). Space Number of Direct labor occupied employees hours hours Cafeteria 1.200 25 Custodial Service 300 40 Machinery Maintenance 1.000 Milling 4.000 100 160.000 20.000 Finishing 2.000 300 40.000 70.000 8.500 525 200.000 90.000 Machine 60 Overhead costs in each department for the year are as follows: Cafeteria.. *320.000 Custodial Service 65.400 Machinery Maintenance 93.600 Milling. 416.000 Finishing... 166.000 Total overhead cost. 1.061.000 *This represents the amount of cost subsidized by the company Required: 1. Allocate service department costs to operating department by the reciprocal method. Then compute predetermined overhead rates in the operating departments for the current year, using machine-hours as the allocation base in the Milling Department and direct labor hours as the allocations base in the Finishing Department G[P31-4.185) - LOS, L09 0 1. Direct Method Service operating 320,000 65.400 65.400 93.600 46.000 166.000 1.061- cafeteria 1320,000) 80.000 240.000 100:300 Custodial Service (65.400) 43,600 2.800 4000:2000 machinery maintenance (93.600) 14,080 118,020 0 160000: 40,000 0 o 614,480 406.520 1.06.00 2. Step-down method 1,600 cafeteria (320.000)25.4 40:60:100: 300 38.400 64.000 192.000 0 (94.000) 13,000 52,000 26.000 0 custodial Service 4000-4000:2000 machinery maintenance 1 (145,000) 116.000 29.000 0 (6 0 o 646.000 43.000 (061,000