Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question: ForestLand Wood Products manufactures lumber and wood components. The company has two main produc... ForestLand Wood Products manufactures lumber and wood components. The company

Question: ForestLand Wood Products manufactures lumber and wood components. The company has two main produc...

ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to each product line based on the percentage of thousand board feet produced by the product line.

Your accounting firm has been retained by ForestLand for three years. You have been assigned to properly allocate support department costs. Your manager wants the allocation to be as accurate as possible and has instructed you to use the reciprocal services method. She reminds you that revenue from by-products are used to offset costs.

You begin your research and learn that there are four production departments: log yard, milling, drying, and packaging. The Hardwood line produces 300 thousand board feet of product while the Softwood produces 900 thousand board feet. The milling department direct costs, direct labor and overhead per thousand board feet for Hardwood is two times that of Softwood. You have been instructed to use the weighted average method to allocate the costs in the milling department between the two product lines. The remaining department costs are the same for both product lines, per thousand board feet.

There are two support departments: maintenance and administration. The maintenance department is responsible for maintaining all equipment and janitorial duties. Because the equipment is used more extensively for hardwoods, the department cost driver is hours worked. The administration department includes the company president and his staff. Their duties include accounting, human resources, and information technology. The cost driver for the administration department is number of employees.

In your first step, you determine the costs traced to each department and the usage of the support department cost drivers. You have created the following table:

Maintenance Administration Log Yard Milling Drying Packaging
Hours worked 11,000 8,100 9,720 21,060 16,200 25,920
Number of employees 8 5 6 12 16 8
Department costs $205,600 $248,600 $369,200 $835,100 $508,700 $290,100

Your next step is to determine the proportional usage of each support department's cost driver by the other departments to which its costs are to be allocated. Complete the following tables.

Maintenance
Department Usage Percent
%
Log Yard
Milling
Drying
Packaging
Totals %
Administration
Department Usage Percent
%
Log Yard
Milling
Drying
Packaging
Totals %

Using the cells below, create the formulas that will simultaneously allocate support department costs among the departments. "M" represents Maintenance and "A" represents Administration.

M = $ + (% )

A = $ + (% )

Solve the equations, If required round any decimal to three places in your computations. For example, .0183 would be rounded to .018. Round your final answer to the nearest dollar.

M = $

A = $

Use the following table to allocate the support cost departments. Round allocated amounts to the nearest whole dollar. If an amount is zero, enter "0".

Support Departments Production Departments
Maintenance Administration Log Yard Milling Drying Packaging
Hours worked
Number of employees
Department cost $ $ $ $ $ $
Maintenance
Administration
Final department costs $ $ $ $ $ $

Using the rounded amounts from the support cost allocation table (previous task), complete the following table to allocate the production department costs to each product line. Round allocated amounts to the nearest whole dollar.

Thousand Board Feet Weight Factor Weighted Thous. Bd. Ft. Weighted % of Board Feet Final Department Costs Cost Allocation to Product Line
Log Yard:
Hardwood % $ $
Softwood
Total Log Yard % $
Milling:
Hardwood % $ $
Softwood
Total Milling % $
Drying:
Hardwood % $ $
Softwood
Total Drying % $
Packaging:
Hardwood % $ $
Softwood
Total Packaging % $

Forest Land earns revenue of $100,000 from selling its by-products, wood shavings and saw dust. Allocate the revenue to each product line in the following table and determine the final cost per product line.

Thousand Board Feet Percentage of Board Feet By-product Revenue Portion of By- product Revenue
Hardwood % $100,000 $
Softwood 100,000
Total % $
Cost per Product Line
Hardwood Softwood
Log Yard $ $
Milling
Drying
Packaging
Subtotal $ $
Portion of By-product revenue
Total cost per product line $ $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Guide On Marketing Audit Start Conducting A Successful Marketing Audit

Authors: Milly Anecelle

1st Edition

B0BM429R34, 979-8363321580

More Books

Students also viewed these Accounting questions

Question

"Projects are more challenging than jobs." Explain.

Answered: 1 week ago