Chapter 12, Problem 14P

Problem 4-17A Cost accumulation and allocation

Yalland Manufacturing Company makes two different products, M and N. The company’s two departments are named after the products; for example, Product M is made in Department M. Yalland’s accountant has identified the following annual costs associated with these two products:

Financial data
Salary of vice president of production division	$160,000
Salary of supervisor Department M	80,000
Salary of supervisor Department N	60,000
Direct materials cost Department M	300,000
Direct materials cost Department N	420,000
Direct labor cost Department M	240,000
Direct labor cost Department N	680,000
Direct utilities cost Department M	120,000
Direct utilities cost Department N	24,000
General factorywide utilities	36,000
Production supplies	36,000
Fringe benefits	138,000
Depreciation	600,000
Nonfinancial data
Machine hours Department M	5,000
Machine hours Department N	1,000

Required

1. a. Identify the costs that are (1) direct costs of Department M, (2) direct costs of Department N, and (3) indirect costs.
2. b. Select the appropriate cost drivers for the indirect costs and allocate these costs to Departments M and N.