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Accounting:Cost allocation and Overheads.

1.-Job order costing, cost drive rates. The Brinker company uses a job order costing system at its local plant. The plant has a machining department and a finishing department. The company uses machine hours to allocate machining department support cost to jobs and uses direct labor cost to allocate finishing department support costs to jobs. Estimates for 2006 are as Follows:

Machining department Finishing department

Manufacturing support cost $350,000 $280,000

Machine hours 14,000 1,400

Direct labor hours 3,500 15,400

Direct labor cost $105,000 $350,000

a. Determine the cost driver rate for each department.

b. During September 2006, cost records for job 101 show the following

Machining Department Finishing department

Direct material cost $8,000 $1,400

Direct Labor cost $250 $800

Direct labor hours 7 35

Machine hours 50 6

Determine the total cost charged to job 101 in September 2006.

2.- Single rate versus department rates. Western Wood Products has two production departments: Cutting and assembly. The company has been using a single predetermined cost driver rate based on plantwide direct labor hours. That is, the plantwide cost driver rate is computed by dividing plant wide support cost by total plantwide support costs by total plant direct labor hours. The estimates for support cost and quantities of cost drivers for 2006 follow:
Cutting Assembly Total
Manufacturing support $25,000 $35,000 $60,000
Direct labor hours 1,000 3,000 4,000
Machine hours 4,000 2,000 6,000

a. What was the single plantwide cost driver rate for 2006

b. Determine departmental cost driver rates based on direct labor hours for assembly and machine hours for cutting.

c. Provide reasons why Western Wood might use the method in (a) or in (b)

3.- Sequential allocation. Carleton Company has two service department and two production department. Information on annual manufacturing support cost and cost follows:

Service Department Production Department

Item S1 S2 P1 P2

Support costs $65,000 $55,000 $160,000 $240,000

Direct labor hours 2,000 1,500 2,000 3,000

Number of square feet 800 1,200 2,400 2,600

The company allocates services department costs using the sequential method. First, S1 costs are allocated on the basis of direct labor hours. Next S2 costs are allocated on the basis of square footage. The square footage for S1 is assumed to be zero for this purpose.

Determine the total support cost allocated to each of the two production departments.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M923975

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