Question
Tension Begins Pvt Ltd Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support Departments Cost (INR) Total costs Building and
Tension Begins Pvt Ltd Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:
Support Departments
Cost (INR)
Total costs
Building and grounds
45,000
Personnel
7,800
General plant administration
36,120
Cafeteria (operating loss)
20,670
Storeroom
18,300
127,890
Operating Departments
Machining
36,000
Assembly
60,000
96,000
Total supporting and operating costs
223,890
Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:
Department
Direct
Number of
Sq feet of
Indirect
Number of
manufacturing
employees
floor space
manufacturing
requisitions
labour hours
occupied
labour hours
Building and
0
0
0
0
0
grounds
Personnel1
0
0
2,500
0
0
General plant
0
40
12,000
0
0
administration
Cafeteria
0
10
4,500
3,000
0
(operating loss)
Storeroom
0
5
6,000
2,000
0
Machining
10,000
55
22,000
13,000
10,000
Assembly
30,000
140
203,000
26,000
8,300
Total
40,000
250
250,000
44,000
18,300
1 = basis used is number of employees
a)Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. i.e. allocate building and grounds first, personnel second and as follows. Use the allocation base for each support department you think is most appropriate.
b)Using the direct method, rework requirement 1.
c)Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
Direct Manufacturing labor hours
Machining
Assembly
Job 88
18
8
Job 89
10
20
The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.
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Contemporary Engineering Economics
Authors: Chan S. Park
5th edition
136118488, 978-8120342095, 8120342097, 978-0136118480
