Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 5, Problem 9E
To determine

Compute the total cost of each production department after allocating all support costs to the production departments.

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Explanation of Solution

Cost allocation:

The cost allocation refers to the process of allocating the costs associated with the production of the products mainly indirectly and are generally ignored. The main objective of cost allocation is to ensure proper pricing of the products. This can be done by several methods.

Janitorial Department Cost to be allocated:

The total Janitorial Department costs include 20% of the Cafeteria department costs as,

10(10+30+10).

Therefore, the Cafeteria Department cost is,

Janitorial department = $310,000 + (0.2×C)

Cafeteria Department Cost to be allocated:

The total Cafeteria Department costs include 50% of the Janitorial department costs as,

5,000(5,000+1,000+4,000).

Therefore, the Cafeteria Department cost is,

Cafeteria department = $169,000 + (0.5×J)

Substitute the equation for J into the C equation:

Cafeteria department = $169,000 +  [0.5×[$310,000 + (0.2×C)]]=$169,000 +$155,000 + (0.1×C)0.9×C=$324,000= $360,000

Substitute the value of C into the J equation:

Janitorial department = $310,000 + (0.2×$360,000)=$310,000 +$72,000 = $382,000

Janitorial Department Cost Allocation:

Compute the allocation of costs from Janitorial Department to Cafeteria Department:

JanitorialDepartment} =(Cafeteria DepartmentTotal cost driver×100)×(Total costs ofJanitorial Department)=(5,0005,000+1,000+4,000×100)×$382,000=50%×$382,000=$191,000

The costs allocated from Janitorial Department to Cafeteria Department is $191,000.

Compute the allocation of costs from Janitorial Department to Cutting Department:

JanitorialDepartment} =(Cutting DepartmentTotal cost driver×100)×(Total costs ofJanitorial Department)=(1,0005,000+1,000+4,000×100)×$382,000=10%×$382,000=$38,200

The costs allocated from Janitorial Department to Cutting Department is $38,200.

Compute the allocation of costs from Janitorial Department to Assembly Department:

JanitorialDepartment} =(Assembly DepartmentTotal cost driver×100)×(Total costs ofJanitorial Department)=(4,0005,000+1,000+4,000×100)×$382,000=40%×$382,000=$152,800

The costs allocated from Janitorial Department to Assembly Department is $152,800.

Cafeteria Department Cost Allocation:

Compute the allocation of costs from Cafeteria Department to Janitorial Department:

CafeteriaDepartment} =(Janitorial DepartmentTotal cost driver×100)×(Total costs ofCafeteria Department)=(1010+30+10×100)×$360,000=20%×$360,000=$72,000

The costs allocated from Cafeteria Department to Janitorial Department is $72,000.

Compute the allocation of costs from Cafeteria Department to Cutting Department:

CafeteriaDepartment} =(Cutting DepartmentTotal cost driver×100)×(Total costs ofCafeteria Department)=(3010+30+10×100)×$360,000=60%×$360,000=$216,000

The costs allocated from Cafeteria Department to Cutting Department is $216,000.

Compute the allocation of costs from Cafeteria Department to Assembly Department:

CafeteriaDepartment} =(Assembly DepartmentTotal cost driver×100)×(Total costs ofCafeteria Department)=(1010+30+10×100)×$360,000=20%×$360,000=$72,000

The costs allocated from Cafeteria Department to Assembly Department is $72,000.

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Chapter 5 Solutions

Managerial Accounting

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