Exam 7: Departmental Overhead Costing

What is the step-down method? What assumptions are necessary to make it relevant?

Which of the following would be classified as a service department?

Sharon Manufacturing The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013. Service Service Producing Producing Dept. 1 Dept. 2 1 2 Department Costs \ 20000 \ 12000 \ 80000 \ 90000 Machine hours 12000 8000 12000 60000 Square Feet Occupied 3000 3000 9000 6000 The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first. -Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to service department 2 under the direct method would be:

Tasmania Manufacturing has the following overhead costs in their four departments.Quality Control and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $20 000 in Quality Control overheads,$50 000 in Maintenance overheads,$60 000 in Mixing overheads and $80 000 in Fabricating overheads. Quality control Maintenance Mixing Fabricating Inspections 20 50 50 150 Machine hours 100 30 200 400 Quality Control overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the reciprocal method to allocate overhead costs to the production departments. Required: A.How much overhead is allocated to the production departments from the service departments? B.What is the total overhead in the production departments after the re-allocation?

Sharon Manufacturing The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013. Service Service Producing Producing Dept. 1 Dept. 2 1 2 Department Costs \ 20000 \ 12000 \ 80000 \ 90000 Machine hours 12000 8000 12000 60000 Square Feet Occupied 3000 3000 9000 6000 The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first. -Assuming that Sharon Manufacturing Company uses the direct method of allocating service costs,the amount of service department 2 costs allocated to producing 2 would be:

Rachael runs a cleaning service that relies on a high level of automation,and is less labour intensive than most other cleaning businesses.Which of the four drivers below would you consider best for allocating her overhead costs?

Why do we have to allocate overhead costs from service departments to production departments?

Danville Manufacturing The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006. Service Dept. 1 Service Dept. 2 Producing 1 Producing Department Costs \ 12000 \ 8000 \ 60000 \ 70000 Number of Transactions 6000 4000 6000 14000 Square Feet Occupied 2000 1000 4000 6000 -Assuming that Danville Manufacturing Company allocates Service Department 1 costs first,the amount of Service Department 1 costs allocated to Service Department 2 under the step-down method would be:

The Sandal Factory manufactures synthetic sandals for the younger market.The company is interested in apportioning the following three costs to four departments.These costs are rent ($500?000),depreciation ($25?000)and insurance ($45?000).Rent is driven by floor space,depreciation by machine hours and insurance by value of equipment.Following is the floor space,machine hours and equipment values for the four departments (HR,Quality control,Machining and Assembly): HR Quality Machining Assembly Control Floor space (\cdot) 600 400 800 1600 Machine hours 700 300 2300 1100 Equipment values \ 7100 \ 3100 \ 1200 \ 2000 Required: A.How much of each overhead cost is allocated to the four departments? B.What is the total overhead in each department?

How are departmental overhead rates superior to plantwide overhead rates?

Perth Manufacturing has the following overhead costs in their four departments.Quality Control and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $20 000 in Quality Control overheads,$56 000 in Maintenance overheads,$60 000 in Mixing overheads and $80 000 in Fabricating overheads. Quality control Maintenance Mixing Fabricating Inspections 20 50 50 150 Machine hours 100 30 200 400 Quality Control overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the step-down method to allocate overhead costs to the production departments.The Quality Control department is allocated first. Required: A.How much overhead is allocated to the production departments from the service departments? B.What is the total overhead in the production departments after the re-allocation?

What are indirect departmental overhead costs? Please give two examples in your explanation.

What overhead driver might best relate to the total overhead cost of a human resources division of BHP Billiton,a large mining company?

When might the plantwide overhead rate be equally effective as departmental overhead rates?

Mega Manufacturing The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013. Service Service Producing Producing Dept.1 Dept.2 1 2 Department Costs \ 40000 \ 30000 \ 90000 \ 70000 Machine hours 8000 4000 20000 16000 Square Feet Occupied 3000 6000 9000 12000 The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first. -Assuming that Mega Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

What is the direct method? What assumptions are necessary to make it relevant?

Kleinveld Inc. The Machinery department and Assembly department are two producing departments in Kleinveld Inc. Machinery’s total overhead is $30 000, using 200 machine hours and 500 direct labour hours. Assembly’s total overhead cost is $45 000, using 300 machine hours and 500 direct labour hours. The Machinery department overhead cost driver for product cost allocation is machine hours, while the Assembly department uses direct labour hours to allocate overhead costs to products. -What is the overhead allocated to a product if the company uses a plantwide rate based on machine hours and a product uses 4 machine hours?

What is the reciprocal method? What assumptions are necessary to make it relevant?

Danville Manufacturing The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006. Service Dept. 1 Service Dept. 2 Producing 1 Producing Department Costs \ 12000 \ 8000 \ 60000 \ 70000 Number of Transactions 6000 4000 6000 14000 Square Feet Occupied 2000 1000 4000 6000 -Assuming that Danville Manufacturing Company uses the direct method of allocating service costs,the amount of service department 2 costs allocated to producing 2 would be:

Barossa Manufacturing has the following overhead costs in their four departments.Inspection and Maintenance are the service departments,while Assembly and Finishing are the production departments.There is currently $30 000 in Inspection overheads,$60 000 in Maintenance overheads,$70 000 in Assembly overheads and $90 000 in Finishing overheads. Inspection Maintenance Assembly Finishing Inspections 20 200 400 300 Machine hours 100 30 150 250 Inspection overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the reciprocal method to allocate overhead costs to the production departments. Required: A.How much overhead is allocated to the production departments from the service departments? B.What is the total overhead in the production departments after the re-allocation?