Question
The mug firm has four departments housed in its factory. There are two producing departments: one (named Plain in the table below) which makes plain
The mug firm has four departments housed in its factory. There are two producing departments: one (named "Plain" in the table below) which makes plain coffee mugs; and another department (Custom) which customises the plain coffee mugs (e.g., a company's name and loge are printed onto the coffee mugs). Also, there are two support departments: one (Maintenance) which maintains the factory's premises and equipment; and another (Financial) which processes all of the financial transactions for the factory's operations such as accounts receivable and accounts payable.
The Coffee Mug Company has finalised its budget for the financial year beginning 1 July, which includes the following information:
Department | Maintenance | Financial | Plain | Custom |
Budgeted costs | $30,000 | $50,000 | $200,000 | $150,000 |
Maintenance hours | 125 | 500 | 500 | 1,000 |
Transaction Processed | 200 | 100 | 600 | 1,200 |
machine hours | 15,000 | 2,500 | ||
Direct Labour hours | 3,000 | 12,500 | ||
Driver used to assign costs | Maintenance hours | Transactions processed | Machine Hours | Direct Labour hours |
(The company uses reciprocal methods to assign the budgeted costs of the support departments (maintenance and financial) to the producing departments (Plain and custom)
answer these:
a) Using the reciprocal method, first calculate the allocation ration from each of the support departments.
b) Formulate the equations to find total maintenance cost to allocate, and the total financial cost to allocate.
c) Solve the simultaneous equations formulated in (b) to determines the total maintenance costs and total financial cost
d) Allocate the support department costs to the producing departments
e) Calculate the predetermined overhead rates each of the producing departments will use to allocate their overhead costs to the products produced in their department. Show all workings
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