Harmon Recycling Services (HRS), a not-for-profit organization, has two drop-off centers, Westside and Eastside. The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits. More detailed financial information for HRS follows: Eastside Westside Total Clients 25,000 6,250 31,250 Revenues $ 270,000 $ 180,000 $ 450,000 Staff hours 8,100 2,700 10,800 Staff costs $ 99,000 $ 81,000 $ 180,000 General operating costs: User-related $ 135,000 Staff-related 135,000 Total general operating costs $ 270,000 The company plans to use Clients to allocate user-related costs and Staff Costs to allocate staff-related costs. Required: Compute the predetermined overhead rate used to apply the two general operating costs pools to the two centers (Eastside and Westside) assuming HRS uses the proposed two-stage cost system to allocate general operating costs. Based on the rates computed in requirement (a), what is the surplus (revenues minus costs) for each service?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Harmon Recycling Services (HRS), a not-for-profit organization, has two drop-off centers, Westside and Eastside. The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits.
More detailed financial information for HRS follows:
| Eastside | Westside | Total | |
|---|---|---|---|
| Clients | 25,000 | 6,250 | 31,250 |
| Revenues | $ 270,000 | $ 180,000 | $ 450,000 |
| Staff hours | 8,100 | 2,700 | 10,800 |
| Staff costs | $ 99,000 | $ 81,000 | $ 180,000 |
| General operating costs: | |||
| User-related | $ 135,000 | ||
| Staff-related | 135,000 | ||
| Total general operating costs | $ 270,000 |
The company plans to use Clients to allocate user-related costs and Staff Costs to allocate staff-related costs.
Required:
-
Compute the predetermined
overhead rate used to apply the two general operating costs pools to the two centers (Eastside and Westside) assuming HRS uses the proposed two-stage cost system to allocate general operating costs. -
Based on the rates computed in requirement (a), what is the surplus (revenues minus costs) for each service?
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