Hi, I have done the workings for A, B and C. Attached are my workings. Please check.
However, I need help with question D. Thanks!
QUESTION 8 Hillcrest Ltd manufactures satellite navigation systems. The firm has two production departments: the Machining Department and the Assembly Department. The firm also has three support departments: the Engineering Department, the Computing Department and the Human Resources Department. The usage of these three support departments' output for 2017 was as follows: Provider of Services Engineering Computing Human Resources User of Services Support departments Production departments Human Engineering Computing Resources Machining Assembly 0% 0% 0% 45% 55% 10% 0% 5% 25% 60% 3% 5% 0% 42% 50% The budgeted department costs in 2017 were as follows: Support Departments: Engineering 600,000 Computing 125,000 Human Resources 140,000 865,000 Production Departments: Machining Assembly 640,000 240,000 880,000 1,745,000 Total Overhead Costs Required: a) Use the direct method to allocate the budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department. (2 marks) b) Use the step down method to allocate budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department. (6 marks) c) Use the reciprocal method to allocate the budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department. (12 marks) d) Discuss whether all service department costs should be allocated and why a firm may find it beneficial to use budgeted usage as an allocation basis. In your answer, you should also discuss why managers might be tempted in such situations to underestimate their planned usage and how a firm might remedy this. (10 marks) a) Direct Method Engineering 600,000 (600,000) Support Department Computing Human Resources 125,000 140,000 Production Department Machining Assembly 640,000 240,000 270,000 330,000 36,765 88,235 63,913 76,087 370,678 494,322 1,010,678 734,322 Cost Distribution Allocation Engineering Allocation Computing Allocation Human Resources Total Allocated Cost Total Budgeted Production Cost (125,000) (140,000) b) Step Down Method Cost Distribution Allocation Computing Allocation Human Resources Allocation Engineering Total Allocated Cost Total Budgeted Production Cost according to the highest proportion in service department Support Department Production Department Computing Human Resources Engineering Machining Assembly 125,000 140,000 600,000 640,000 240,000 (125,000) 6,250 12,500 31,250 75,000 (146,250) 4,618 64,658 76,974 (617,118) 277,703 339,415 373,611 491,389 1,013,611 731,389 c) Reciprocal Services Method E = 600000+0.10C+0.03HR C = 125000+0.05HR HR = 140000+0.05C Support Department Engineering Human Resources Computing 600,000 140,000 125,000 (617,632) (146,617) 7,331 13,233 6,617 (132,331) Cost Distribution Allocation Engineering Allocation Human Resources Allocation Computing Total Allocated Cost Total Budgeted Production Cost Production Department Machining Assembly 640,000 240,000 277,934 339,697 61,579 73,308 33,083 79,398 372,596 492,404 1,012,596 732,404 4,398 C = 132330.83 HR = 146616.54 E = 657218.045
