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When you present your output to CFO, CFO finds this approach simplistic and asks you to allocate each department's overhead separately. Overhead costs in
When you present your output to CFO, CFO finds this approach simplistic and asks you to allocate each department's overhead separately. Overhead costs in frame fabrication are allocated to chairs based on direct labor costs, whereas cushion fabrication overhead costs are allocated based on direct material costs. Budgeted overhead costs of each department for the coming year are shown in the accompanying table. Budgeted Overhead Costs Frame Fabrication Cushion Fabrication Rent Indirect labor $ 500,000 $1,180,000 650,000 1,010,000 Indirect materials 470,000 655,000 Equipment lease payments 1,413,000 Total overhead $1,620,000 $4,258,000 Basic Number of chairs Budgeted Chair Production and Cost Data Frame Fabrication Cushion Fabrication Total 225,000 Direct labor/per chair Direct materials/per chair Total Executive Number of chairs $ 7.40 6.70 $14.10 $ 6.40 2.40 $ 8.80 $ 22.90 192,000 Direct labor/per chair $ 7.50 $ 8.70 Direct materials/per chair 6.80 6.20 Total $14.30 $14.90 $ 29.20 Budgeted overhead costs for the year are shown in the accompanying table. Budgeted Overhead Costs Rent Indirect labor Indirect materials Equipment lease payments Total overhead Task 1 (4 marks): $1,680,000 1,660,000 1,125,000 1,413,000 $5,878,000 You took cost accounting in the University of Melbourne and decide to use a single overhead cost pool and a single allocation base to allocation overhead to basic and executive chairs. You use "direct labor costs" as the allocation base. Please calculate the unit cost of basic and executive chairs using above mentioned approach. Calculate the unit cost for basic and executive chairs using the two department overhead rates. Explain the difference in the unit costs between the two methods in tasks 1 and 2. Comment on which method is likely to produce more accurate estimates of the unit costs. Please note: When doing calculation, round your answer to the nearest two decimal points. Present your calculations and discussions in a clear and coherent fashion. An ineffective writing structure will discount the soundness of the explanations and the marks. Make sure that you clearly identify the assumptions if needed.
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