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Semicon Manufacturing Inc. produces two products, in departments IC20 and IC30 respectively. There are also three support departments, Stores, Maintenance and Administration. No inventories are
Semicon Manufacturing Inc. produces two products, in departments IC20 and IC30 respectively. There are also three support departments, Stores, Maintenance and Administration. No inventories are held due to the perishable nature of the products. Direct costs of the products, which are variable, are identified to each department. Semicon Manufacturing Inc. allocates support department costs using the step-down method based on estimates of the usage in percentage, of the services provided as shown in table below. These are expressed as percentages and assumed to be reliable over the current capacity range. The general fixed factory overheads of $5,400,000, are apportioned based on floor space occupied. The company establishes costs based on budgeted volume and products are priced using a total cost plus model at a 20% markup from cost. Extracts of the 2021 Budgets are as follows: Annual volume (units) IC20 IC30 Budgeted production volume 168.000 84,000 IC20 IC30 2,700,000 1,050,000 1,200,000 750,000 Stores Maint Admin 150,000 150,000 150,000 300,000 300,000 Material costs ($) Other variable costs ($) Departmental usage: Maintenance Administration Stores Floor Space (sq. m.) 20% 20% 10% 0% 60% 40% 70% 960 20% 30% 30% 720 360 120 240 Required: (a) Discuss and explain the appropriate sequence of allocations by department without performing any calculations. (b) Ignoring your answer to pait (a), calculate the total costs for IC20 and IC30 using the step- down method to allocate the support departments' costs, beginning with Administration, followed by Maintenance, and finally Stores. (c) Compute the budgeted unit selling price of products of IC20 and IC30 based on 20% of total cost plus markup that the company is currently using (round computations to 2 decimal places). (d) Explain whether the overhead costs would have been different if direct method had been used instead of step-down method
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