Please see screenshots attached. Questions 1-4 with supporting calculations are needed.

Question 1: Cost Allocation \"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 labour 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 making 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 customers5 specications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand-nishing 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 other departments in the order listed below. For each service department, use the most appropriate allocation base: Square Metres Total Lab our- of Space Number of Machine- Labour- Hours Occupied E mployees Hours Hours 16,000 12,000 25 Custodial Services 9, 000 3 ,000 Machinery Maintenance 15,000 10, 000 Milling 160,000 Finishing 200,000 Budgeted overhead costs in each department for the current year are as follows: Custodial Services 65,400 Machinery Maintenance 93,600 Milling 416,000 Finishing 166 000 MAF 5001 June 9 Total budgeted cost $1,061,000 *This represents the amount of cost subsidized by the company The company has always allocated service department costs to the operating departments (Milling and Finishing) using the direct method of allocation, because of its simplicity. Required: 1. Allocate service department costs to operating departments by the step-down method. Then compute predetermined overhead rates in the operating departments for the current year, using machinehours as the allocation base in the Milling Department and direct labour-hours as the allocation base in the Finishing Department. 2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Milling and Finishing Departments. 3. Assume that during the current year the company bids on a job that requires machine and labour time as follows: h-'Izleliille-Hours Direct Labour-Hours Milling Department 2,000 1,600 Finishing Department E 13 000 Determine the amount of overhead that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead that would be assigned to the job if the company used the overhead rates developed in (2) above. Explain to the president why the step-down method provides a better basis for computing predetermined overhead rates than the direct method. MAF 5001 June 9 Question 2: Activity Based Costing Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys quarried local rock, limestone, and clay from around the world and mixes, blends, and packages the processed cement for resale. OCI offers a large variety of cement types that it sells in one kilogram bags to local retailers for small doityourself jobs. The major cost of the cement is raw materials. However, the company's predominantly automated mixing, blending, and packaging processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labour. Some of OCI's cement mixtures are very popular and sell in large volumes, while a few of the recently introduced cement mixtures sell in very low volumes. OCI prices its cements at manufacturing cost plus a 25% markup, with some adjustments made to keep the company's prices competitive. For the coming year, OCI's budget includes estimated manufacturing overhead cost of $4,400,000. OCI assigns manufacturing overhead to products on the basis of direct labourhours. The expected direct labour cost totals $1,200,000, which represents 100,000 hours of direct labour time. Based on the sales budget and expected raw materials costs, the company will purchase and use $10,000,000 of raw materials (mostly quarried rock, limestone, and clay) during the year. The expected costs for direct materials and direct labour for one-kilogram bags of two of the company's cement products appear below: Normal Portland High Sulphate Resistance Direct labour (0.02 hours per bag) $0.24 $0.24 OCI's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether this is the case, the controller has prepared an analysis of the year's expected manufacturing overhead costs, as shown in the following table: Expected Expected Activity Cost Activity Cost Pool Activity Measure for the Year for the Year Purchasing Purchase orders 4,000 orders $ 1,120,000 Materials handling Number of setups 2,000 setups 386,000 Quality control Number of batches 1,000 batches 180,000 Mixing Mixinghours 190,000 mixinghours 2,090,000 MAF 5001 June 9 Data regarding the expected production of Normal Portland and High Sulphate Resistance cement mixes are presented below: Normal Portland High Sulphate Resistance Required: 1. Using direct labourhours as the base for assigning manufacturing overhead cost to products, do the following: a. Determine the predetermined overhead rate that will be used during the year. b. Detennine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement. 2. Using ABC as the basis for assigning manufacturing overhead cost to products, do the following: a. Determine the total amount of manufacturing overhead cost assigned to the Normal Portland cement and to the High Sulphate Resistance cement for the year. b. Using the data developed in 2(a) above, compute the amount of manufacturing overhead cost per kilogram of the Normal Portland cement and the High Sulphate Resistance cement. Round all computations to the nearest whole cent. 0. Detennine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement. 3. Write a brief memo to the president of OCI explaining What you found in (1) and (2) above, and discuss the implications to the company of using direct labour as the base for assigning manufacturing overhead cost to products. MAF 5001 June 9 Question 3 Product Life Cycle Thomas owns a yacht business who plans to offer two-hour tour rides around the Toronto harbor. He estimates that she should be able to sell 500 tours per year. Thomas's accountant suggests that he uses costplus pricing based on the total lifetime product cost to determine a price per hour for the new service. He plans to keep the yacht for 10 years and then retire. Thomas's costs are as follows: Yacht operating costs: variable operating costs per hour: $300 variable overhead operating costs per hour: $25 xed annual ground-related costs: $50,000 Selling and administrative costs: fixed sales, general and administration per year: $150,000 0 variables sales, general and administration costs: $18 per hour 0 developing the tour business: $250,000 0 abandoning the tour business, including disposal of the yacht: $50,000 Thomas would like to make a prot equal to 10% markup over cost. Required: 1. What hourly rate will Thomas charge using total lifetime product cost? 2. Thomas decides that he wants to see what the price would be if he considered only the direct ight costs with a 60% markup. Question 4: Joint Cost Eastern Lumber Inc. (Eastern) purchases logs from independent timber contractors and processes the logs into three types of lumber products. 0 Studs for residential buildings (walls, ceilings) 0 Decorative pieces (replace mantels, beams for cathedral ceilings) 0 Posts used as support braces (mine support braces, braces for exterior fences on ranch properties) These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting the logs into a workable size, and then cutting the individual products from the logs. The joint process results in the following cost of products for a typical month: Direct materials (rough timber logs) $ 500,000 Debarking (Labour and overhead) 50,000 Sizing (Labour and overhead) 200,000 Product cutting (Labour and overhead) 250,000 Totaljoint costs $ 1,000,000 Product yields and average sales values on a per sheet basis from the joint process are as follows: Product Monthly output of materials Fully processed selling price at the split off point Studs 75,000 units $ 8 Decorative pieces 5,000 units 33 100 Posts 20,000 units 33 20 The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by Eastern. Also, the posts require no further processing beyond the splitoff point. The decorative pieces must be planned and further sized after emerging from the sawmill. This additional processing costs $ 100,000 per month and normally results in a loss of 10% from the units entering the process. Without this planning and sizing process, there is still an active intermediate market for the unnished decorative pieces in which the selling price averaged 115 60 per unit. Required: 1. Based on the information given for the Eastern Lumber, allocate the joint procession cost of $ 1,000,000 to the tree product using: a. Sales value at splitoff method b. Physical measure method (volume in units) 0. NRV method 2. Prepare an analysis that compares processing the decorative pieces further, as is current practice, with selling them as a rough-cut product immediately at splitoff. Page 6 MAF 5001 - June 9 3. Assume the company announced that in six months it will sell the unfinished decprative pieces at split off due to increasing competitive pressure. Identify at least thee types of likely behavior that will be demonstrated by the skilled labour in the planning and sizing process as a result of this announcement. Include in your discussion how this behavior could be influenced by management