Cost Accounting_ADM3346 Capstone Exercises Chapter 15 The Gleason Company, a Canadian division of a large international company, has prepared estimated costs for next year that can be traced to each department as follows: Building and grounds $ 41,010 Factory administration 78,270 Cafeteriaoperating loss 4,920 Machining 104,100 Assembly 146,700 Total $375,000 Management would like to know the estimated total allocated product cost per unit. This cost will be used as a benchmark for future-period operations. The following information is available and can be used as possible allocation bases. The difference between direct labour hours and total labour hours represents hours of supervisory labour or labour hours that are used indirectly for manufacturing. The cost of these hours in machining and assembly is part of manufacturing overhead: Department Direct Labour Hours Number of Employees Square Metres Total Labour Hours Number of Purchase Orders Factory administration 2,000 3 50 2,000 1,000 Cafeteria 1,000 2 100 1,000 4,000 Machining 3,000 4 350 8,000 2,000 Assembly 6,000 5 500 10,000 1,000 Total 12,000 14 1,000 21,000 8,000 2 L07 REQUIRED 1. Allocate the building and grounds costs to all other departments using square metres as the allocation base. Add the allocated costs to direct costs to arrive at the total costs assigned to each department. 2. Explain whether each remaining department is a support department or an operating department. 3. Compute allocated costs of support department(s) for each operating department you decided in part 2). Given the allocation bases of number of employee, allocate support department costs to each operating department using the step-down method. 4. Assume that factory administration costs are allocated based on total labour hours and that the total allocated cost is used to charge other departments for administrative services. List one advantage and one disadvantage of this charge system. 5. Suppose you are the manager of the machining department at Gleason. You can outsource some of your departments work. Outsourcing would reduce direct labour hours and, therefore, reduce the amount of administration costs allocated to your department using direct labour hours as the allocation based. State two factors you should consider in deciding whether to outsource. 1