West State Furniture (WSF) manufactures desks and desk chairs using two departments within a single facility. The West Department produces the desks, and the State Department produces the chairs. WSF uses plantwide allocation to allocate its overhead to all products. Direct materials cost is the allocation base. The rate used is 60 percent of direct materials cost. Last year, revenue, direct materials, and direct labor were as follows. Sales revenue Direct materials Direct labor Required: Desks $ 945,000 385,000 175,000 Chairs $ 810,000 247,500 112,500 a. Compute the profit or loss for each product using plantwide allocation. b. The new CFO at WSF was surprised that the company used a plantwide rate, because the two products were produced in separate departments. The cost analyst estimated the overhead rates for each department separately. Using department rates, the West Department rate would be 33 percent of direct materials cost. The State Department rate would be 102 percent of direct materials cost. Recompute the profits or loss for each product using each department's allocation rate (based on direct materials cost in each department). a. Using plantwide allocation b. Using department's allocation rate Profit or Loss Desks Chairs
West State Furniture (WSF) manufactures desks and desk chairs using two departments within a single facility. The West Department produces the desks, and the State Department produces the chairs. WSF uses plantwide allocation to allocate its overhead to all products. Direct materials cost is the allocation base. The rate used is 60 percent of direct materials cost. Last year, revenue, direct materials, and direct labor were as follows. Sales revenue Direct materials Direct labor Required: Desks $ 945,000 385,000 175,000 Chairs $ 810,000 247,500 112,500 a. Compute the profit or loss for each product using plantwide allocation. b. The new CFO at WSF was surprised that the company used a plantwide rate, because the two products were produced in separate departments. The cost analyst estimated the overhead rates for each department separately. Using department rates, the West Department rate would be 33 percent of direct materials cost. The State Department rate would be 102 percent of direct materials cost. Recompute the profits or loss for each product using each department's allocation rate (based on direct materials cost in each department). a. Using plantwide allocation b. Using department's allocation rate Profit or Loss Desks Chairs
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:West State Furniture (WSF) manufactures desks and desk chairs using two departments within a single facility. The West Department
produces the desks, and the State Department produces the chairs. WSF uses plantwide allocation to allocate its overhead to all
products. Direct materials cost is the allocation base. The rate used is 60 percent of direct materials cost. Last year, revenue, direct
materials, and direct labor were as follows.
Sales revenue
Direct materials
Direct labor
Required:
Desks
$ 945,000
385,000
175,000
Chairs
$ 810,000
247,500
112,500
a. Compute the profit or loss for each product using plantwide allocation.
b. The new CFO at WSF was surprised that the company used a plantwide rate, because the two products were produced in separate
departments. The cost analyst estimated the overhead rates for each department separately. Using department rates, the West
Department rate would be 33 percent of direct materials cost. The State Department rate would be 102 percent of direct materials
cost. Recompute the profits or loss for each product using each department's allocation rate (based on direct materials cost in each
department).
a. Using plantwide allocation
b. Using department's allocation rate
Profit or Loss
Desks
Chairs
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