Horngren's Cost Accounting, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134476032
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 15, Problem 15.30P
Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department
| Support departments: | ||
| Building and grounds | $45,000 | |
| Personnel | 7,800 | |
| General plant administration | 36,120 | |
| Cafeteria: operating loss | 20,670 | |
| Storeroom | 18,300 | $127,890 |
| Operating departments: | ||
| Machining | 536,000 | |
| Assembly | 60,000 | 96,000 |
| Total for support and operating departments | $223,890 |
Management has decided that the most appropriate inventory costs are achieved by using individual-department overhead rates. These rates are developed after support-department costs are allocated to operating departments.
Bases for allocation are to be selected from the following:
- 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.
- 2. Using the direct method, rework requirement 1.
- 3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
| Direct Manufacturing Labor-Hours | ||
| Machining | Assembly | |
| Job 88 | 18 | 8 |
| Job 89 | 10 | 20 |
- 4. The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.
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Students have asked these similar questions
Allocating costs of support departments; step-down and direct methods. The Eastern Summit
Company has prepared department overhead budgets for budgeted-volume levels before allocations as
follows:
Support departments:
$45,000
7,800
36,120
20,670
18,300
Building and grounds
Personnel
General plant administration
Cafeteria: operating loss
Storeroom
$127,890
Operating departments:
Machining
Assembly
Total for support and operating departments
$36,000
60,000
96,000
$223,890
Management has decided that the most appropriate inventory costs are achieved by using individual-
department overhead rates. These rates are developed after support-department costs are allocated to
operating departments.
Bases for allocation are to be selected from the following:
Direct
Manufacturing Number of Floor Space Manufacturing Number of
Labor-Hours Employees Occupied
Square Feet of
Indirect
Labor-Hours Requisitions
Department
Building and grounds
Personnel"
2,500
12,000
4,500
6,000
22,000
General plant…
Nanda Company has two service departments, Maintenance and Personnel. Maintenance
Department costs of P160,000 are allocated on the basis of budgeted maintenance-hours.
Personnel Department costs of P40,000 are allocated based on the number of employees. The
costs of operating departments A and B are P80,000 and P120,000, respectively. Data on
budgeted maintenance-hours and number of employees are as follows:
Support Departments
Production Departments
Maintenance
A
B
Department
Budgeted costs
P160,000
P40,000
P80,000 P120,000
Budgeted
ΝΑ
400
480
320
maintenance-hours
Number of employees
20
ΝΑ
80
240
Using the step-down method, what amount of Maintenance Department cost will be allocated
to Department A if the service department with the highest percentage of interdepartmental
support service is allocated first? (Round up)
Personnel
Department
Rafner Manufacturing identified the following budgeted data in its two production departments.
Assembly
$1,267,200
12,700 DLH
6,700 MH
Finishing
$ 670,000
20,700 DLH
16,700 MH
Manufacturing overhead costs
Direct labor hours
Machine hours
Required:
What is the company's assembly department overhead rate using direct labor hours?
The departmental overhead rate for Assembly
Chapter 15 Solutions
Horngren's Cost Accounting, Student Value Edition (16th Edition)
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - What are the challenges of using the incremental...
Ch. 15 - Prob. 15.11QCh. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Single-rate versus dual-rate methods, support...Ch. 15 - Single-rate method, budgeted versus actual costs...Ch. 15 - Dual-rate method, budgeted versus actual costs and...Ch. 15 - Support-department cost allocation; direct and...Ch. 15 - Support-department cost allocation, reciprocal...Ch. 15 - Direct and step-down allocation. E-books, an...Ch. 15 - Reciprocal cost allocation (continuation of...Ch. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Allocation of common costs. Gordon Grimes, a...Ch. 15 - Revenue allocation, bundled products. Couture Corp...Ch. 15 - Allocation of common costs. Jim Dandy Auto Sales...Ch. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Fixed-cost allocation. Central University...Ch. 15 - Allocating costs of support departments; step-down...Ch. 15 - Support-department cost allocations;...Ch. 15 - Common costs. Tate Inc. and Booth Inc. are two...Ch. 15 - Prob. 15.33PCh. 15 - Support-department cost allocations;...Ch. 15 - Revenue allocation, bundled products. Boca Resorts...Ch. 15 - Support-department cost allocations; direct,...
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