Question
CustomBoatManufacturingCompanymakescustomisedboatsanduses a jobcostingsystem.The company has two support departments (administration and security) and twomanufacturingdepartments(machiningandassembly).Thefollowingtableshowsthetotaloverheadcostsofmanufacturingdepartments afterthe supportdepartments'costshavebeenallocated underthreecostallocation methods. Cost Allocation Method Machining Department Cost Assembly Department
CustomBoatManufacturingCompanymakescustomisedboatsanduses a jobcostingsystem.The company has two support departments (administration and security) and twomanufacturingdepartments(machiningandassembly).Thefollowingtableshowsthetotaloverheadcostsofmanufacturingdepartments afterthe supportdepartments'costshavebeenallocated underthreecostallocation methods.
| CostAllocationMethod | MachiningDepartmentCost | AssemblyDepartmentCost | |
| DirectMethod | $8,650,000 | $7,350,000 | |
| Ste | downMethod | $8,500,000 | $7,500,000 |
| ReciprocalMethod | $9,000,000 | $7,000,000 | |
Managementofthecompanyhasdecidedthatitwillachievethemostappropriatejobcostsbyusingindividualmanufacturingdepartmentoverheadratestoallocatetheoverheadcoststothejobs.These ratesare developed after support-department costs are allocatedtomanufacturingdepartments. Thecompanyusesnormal costing.Machiningdepartment'scostisallocated onthebasisofmachine-hoursandAssemblydepartment'scostisallocated basedonlabourhours.Thebudgetedlabourhourandmachinehoursforthetwomanufacturingdepartmentsarepresentedbelow.
| ManufacturingDepartments | MachineHours | LabourHours |
| MachiningDepartment | 200,000 | 15,000 |
| AssemblyDepartment | 80,000 | 35,000 |
Required:
(a) Basedonthefollowinginformation,determinethetotalcostsforJobMT27ifthecompanyuses Reciprocal Method to allocatesupport departments' costs to themanufacturingdepartments.
| Jobno.MT27 | Machining | Assembly |
| Directmaterials | $36,000 | $6,710 |
| Directlabourcost | $1,550 | $1,650 |
| Directlabourhours | 45 | 70 |
| MachineHours | 210 | 20 |
(b)Thecompanyevaluatestheperformanceoftheoperatingdepartmentmanagersonthebasisofhowwelltheymanagedtheirtotalcosts,includingallocatedcosts.Asthe
managerof theMachiningDepartment,whichallocationmethodwould youprefer toallocatesupportdepartment'scoststomanufacturingdepartments?
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Accounting Business Reporting For Decision Making
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver
4th Edition
978-0730302414, 0730302415
