Question 1 (16 marks) Canvas Company has two support departments (IT and Finance department) and two production departments: The Printing and Pasting department. The usage of the two support departments' output in the year just ended were as follows: Support Departments IT Finance IT 40% Finance 40% Printing 30% 40% Pasting 30% 20% The budgeted overhead costs in the two support departments for the year were: IT: $1,000,000 Finance: $800,000 The Printing and Pasting department use direct labour hours to assign overhead costs to products, see data below for the year: Printing department Pasting department Direct Labour Hours 50,000 20,000 Machine Hours 100,000 50,000 The product Canvas Company produces requires 1 labour hour per unit in the Printing department and 30 minutes per unit in the Pasting department. Prime cost for the product is $40 per unit and Canvas Company prices its product at full production cost plus 150% profit margin. Required: 1. Using the step-down/sequential method, allocate the budgeted overhead costs of the support departments (allocate Finance department first) to the production departments and calculate the total overhead cost of the Printing and Pasting department. 2. Calculate the predetermined overhead application rate of each production department. 3. Calculate the per unit price of the product (show detailed calculations). 4. Should actual or budgeted support department overhead costs be allocated to the production departments? Provide detailed explanations. (7+4+3+ 2 = 16 marks) Start your answer here: Question 1 (16 marks) Canvas Company has two support departments (IT and Finance department) and two production departments: The Printing and Pasting department. The usage of the two support departments' output in the year just ended were as follows: Support Departments IT Finance IT 40% Finance 40% Printing 30% 40% Pasting 30% 20% The budgeted overhead costs in the two support departments for the year were: IT: $1,000,000 Finance: $800,000 The Printing and Pasting department use direct labour hours to assign overhead costs to products, see data below for the year: Printing department Pasting department Direct Labour Hours 50,000 20,000 Machine Hours 100,000 50,000 The product Canvas Company produces requires 1 labour hour per unit in the Printing department and 30 minutes per unit in the Pasting department. Prime cost for the product is $40 per unit and Canvas Company prices its product at full production cost plus 150% profit margin. Required: 1. Using the step-down/sequential method, allocate the budgeted overhead costs of the support departments (allocate Finance department first) to the production departments and calculate the total overhead cost of the Printing and Pasting department. 2. Calculate the predetermined overhead application rate of each production department. 3. Calculate the per unit price of the product (show detailed calculations). 4. Should actual or budgeted support department overhead costs be allocated to the production departments? Provide detailed explanations. (7+4+3+ 2 = 16 marks) Start your answer here
