Answered step by step
Verified Expert Solution
Question
1 Approved Answer
! Required Information [ The following information applles to the questions displayed below. ] Tennessee Company manufactures a specialized fitting for industrial machinery at the
Required Information
The following information applles to the questions displayed below.
Tennessee Company manufactures a specialized fitting for industrial machinery at the Stephens Street Facility. The facility has five departments. Two departments Casting and Finishing are production departments. The other three departments Purchasing Human Resources, and Information Technology are considered service departments. The accumulated costs in the three service departments in the most recent period were $$ and $ respectively. The corporate management at Tennessee as been concerned that the costs of the service departments are getting too high. As a result, the plant manager has been told that the bonus payments to plant management the plant manager and the five department managers will not be pald if the cost of the allocated service departments is above $ per unit in elther production department.
The product costing system at the plant currently uses the step method of service department cost allocation, although that is a decision choice of the plant controller. Information Technology IT costs are allocated first, followed by Human Resources HR and then Purchasing. IT costs are allocated on the basis of IT calls" requests for service HR costs are allocated on the basis of employees. Purchasing costs are allocated on the basis of purchase orders POs The use of each base by all departments during the most recent period follows:
tableAllocation Base,Used byPurchasingtableHumanResourcestableInformationTechnologyCasting,FinishingPurchase orders,EmployeesIT calls,
Direct costs of the Casting Department Including department overhead, but before allocation of any service department costs were $ in the most recent period. Direct costs in the Finishing Department again including department overhead, but before allocation of any service department costs were $
Required: service department
c Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated? Explain.
d Repeat the analysis in requirement a assuming the Stephens Street facility uses the direct method to allocate service department costs.
e Based on your analysis, will the bonus be paid if the most recent period's costs and activity are repeated and the direct method is used to allocate service department costs? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started