MANAGEMENT ACCOUNTING CASE ASSIGNMENT

DSL Company manufactures and sells specialized tools and dies for other manufacturers. The company has two manufacturing operations, machining and assembly. When an order for tools and dies is received, the Machining Department makes the parts through a CAD/CAM system. The completed parts are then sent to the Assembly Department where the components are assembled and tested.

To support the manufacturing activity, the company has a building that houses the two manufacturing departments as well as the Power Service Center and the Engineering Service Center. To aid in cost control, the company accumulates the costs of these support functions in separate service departments: (S1) Power and (S2) Engineering.

Assume that the allocation bases are as follows:

• Power service center - kilowatt hours
• Engineering service center - engineering hours

The departmental costs and allocation is shown in the following table:

Assume the company has two service departments and their costs are recorded in these departments and are allocated to two production departments. All four departments share the same building. Each service department is an intermediate cost center whose costs are recorded as incurred and then distributed to other cost centers.

Requirements - You have been hired as a consultant to the company. Prepare an analysis and letter to the president allocating the overhead costs and determining the total departmental costs and their respective overhead rates based upon the following methods:

1. Direct method

2. Step method

3. Reciprocal method