Rose Richard Company has two products. Product 1 is manufactured entirely in Department X. Product 2 is manufactured in Department Y. To produce these two products the Rose Richard Company has two support departments. Material Handling Department and Power Generating Department. An analysis of the work done by Material Handling and Power Generating Department in a typical period follows: Used By Supplied by Material Handling Power generating Material Handling Power Generating Department X 150 Department Y 225 480 375 600 120 The work done by Material Handling Department is measured by the direct labor hours of material handling time. The work done by Power Generating Department is measured by the kilowatt hours per hour. The budgeted costs of the support department for the coming year are as follows: Material Handling Power Generation $105,000 Variable indirect labor and indirect material $12,000 costs $12,000 $24,000 $48,000 Supervision Depreciation Total Costs $15,000 $30,000 $150,000 The budgeted costs of the operating departments for the coming year are $2,250,000 for Department X and $1,200,000 for Department Y.
Rose Richard Company has two products. Product 1 is manufactured entirely in Department X. Product 2 is manufactured in Department Y. To produce these two products the Rose Richard Company has two support departments. Material Handling Department and Power Generating Department. An analysis of the work done by Material Handling and Power Generating Department in a typical period follows: Used By Supplied by Material Handling Power generating Material Handling Power Generating Department X 150 Department Y 225 480 375 600 120 The work done by Material Handling Department is measured by the direct labor hours of material handling time. The work done by Power Generating Department is measured by the kilowatt hours per hour. The budgeted costs of the support department for the coming year are as follows: Material Handling Power Generation $105,000 Variable indirect labor and indirect material $12,000 costs $12,000 $24,000 $48,000 Supervision Depreciation Total Costs $15,000 $30,000 $150,000 The budgeted costs of the operating departments for the coming year are $2,250,000 for Department X and $1,200,000 for Department Y.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Rose Richard Company has two products. Product 1 is manufactured entirely in Department X.
Product 2 is manufactured in Department Y. To produce these two products the Rose Richard
Company has two support departments. Material Handling Department and Power Generating
Department. An analysis of the work done by Material Handling and Power Generating Department in
a typical period follows:
Used By
Supplied by
Material Handling
Power generating
Material Handling Power Generating Department X
150
Department Y
225
480
375
600
120
The work done by Material Handling Department is measured by the direct labor hours of material
handling time. The work done by Power Generating Department is measured by the kilowatt hours
per hour. The budgeted costs of the support department for the coming year are as follows:
Material Handling Power Generation
$105,000
Variable indirect labor and indirect material
$12,000
costs
Supervision
Depreciation
Total Costs
$15,000
$30,000
$150,000
$12,000
$24,000
$48,000
The budgeted costs of the operating departments for the coming year are $2,250,000 for Department
X and $1,200,000 for Department Y.
Required:
1. Using the reciprocal method allocate the support costs to the production department.
2. An outside company has offered to supply all the power needed by the Rose Richard
Company and to provide all the services of the present power department. The cost of the
service will be $40 per kilowatt hour of power. Should Rose Richard accept? Explain.
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