Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Production Department B C D Total Production Department A B C Direct Labor Hours Allocation Base D Total (Percent) 20% 30 10 40 100% Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. Cost Allocation Based on Direct Labor Hours S $ Cost Allocation Based on Direct 66,000 99,000 33,000 132,000 330,000 Labor Hours $ 66,000 99,000 33,000 132,000 $ 330,000 Outside Price $ 110,000 88,000 66,000 176,000 $ 440,000 Cost Allocation Based on Outside Prices
Required Information [The following information applies to the questions displayed below.] McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in each of its four production departments. Maintenance costs are currently allocated to the production departments on the basis of direct labor hours incurred in the production department. To provide pressure for the production departments to use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside maintenance provider. Production Department B C D Total Production Department A B C Direct Labor Hours Allocation Base D Total (Percent) 20% 30 10 40 100% Required: 1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor hours basis. Cost Allocation Based on Direct Labor Hours S $ Cost Allocation Based on Direct 66,000 99,000 33,000 132,000 330,000 Labor Hours $ 66,000 99,000 33,000 132,000 $ 330,000 Outside Price $ 110,000 88,000 66,000 176,000 $ 440,000 Cost Allocation Based on Outside Prices
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Rahul
![Required Information
[The following information applies to the questions displayed below.]
McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in
each of its four production departments. Maintenance costs are currently allocated to the production departments on the
basis of direct labor hours incurred in the production department. To provide pressure for the production departments to
use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun
has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form
of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they
could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of
direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance
cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside
maintenance provider.
Direct Labor Hours
Production Allocation Base
Department
A
B
C
D
Total
Production
Department
A
B
C
D
Total
(Percent)
20%
30
10
48
100%
Required:
1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside
maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor
hours basis.
Cost Allocation
Based on Direct
Labor Hours
$
$
66,000
99,000
33,000
Cost Allocation
Based on Direct
132,000
330,000
Labor Hours
$ 66,000
99,000
33,000
132,000
$ 330,000
Outside
Price
Cost Allocation
Based on
Outside Prices
$ 110,000
88,000
66,000
176,000
$ 440,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9838c026-9c74-4661-ae44-d493150bd3ab%2F78b26fd4-3725-4e1f-a112-b7fb8866022d%2F12n4wd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required Information
[The following information applies to the questions displayed below.]
McKeoun Enterprises is a large machine tool company now experiencing alarming increases in maintenance expense in
each of its four production departments. Maintenance costs are currently allocated to the production departments on the
basis of direct labor hours incurred in the production department. To provide pressure for the production departments to
use less maintenance, and to provide an Incentive for the maintenance department to become more efficient, McKeoun
has decided to investigate new methods of allocating maintenance costs. One suggestion now being evaluated is a form
of outsourcing. The producing departments could purchase maintenance service from an outside supplier. That is, they
could choose either to use an outside supplier of maintenance or to be charged an amount based on their use of
direct labor hours. The following table shows the direct labor hours in each department, the allocation of maintenance
cost based on labor hours, and the cost to purchase the equivalent level of maintenance service from an outside
maintenance provider.
Direct Labor Hours
Production Allocation Base
Department
A
B
C
D
Total
Production
Department
A
B
C
D
Total
(Percent)
20%
30
10
48
100%
Required:
1. As a first step in moving to the outsourcing approach, McKeoun is considering an allocation based on the price of the outside
maintenance supplier for each department. Calculate the cost allocations on this basis and compare them to the current direct labor
hours basis.
Cost Allocation
Based on Direct
Labor Hours
$
$
66,000
99,000
33,000
Cost Allocation
Based on Direct
132,000
330,000
Labor Hours
$ 66,000
99,000
33,000
132,000
$ 330,000
Outside
Price
Cost Allocation
Based on
Outside Prices
$ 110,000
88,000
66,000
176,000
$ 440,000
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