Race Cars, Inc., produces model cars made from aluminum. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting, and Maintenance. The accumulated costs in the three service departments were $250,000, $400,000 and $200,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under $3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs. The company decided that Administration costs should be allocated on the basis of square footage used by each production and service department. Accounting costs are allocated on the basis of number of employees. Maintenance cost are allocated on the basis of the dollar value of the equipment in each department. The use of each base by all departments during the current period is as follows: Service Departments Production Departments Administration Accounting Maintenance Molding Painting Costs: Direct materials $237,500 $210,000 Direct Labor $337,500 $200,000 Direct Overhead $112,500 $75,000 Allocated OH $250,000 $400,000 $200,000 Allocation Base Building Area 10,000 30,000 20,000 360,000 90,000 Employees 18 10 12 70 100 Equipment Value $6,000 $120,000 $17,500 $312,000 $162,000 Required: A). Using the direct method, determine the allocated costs and the total costs in each of the two production departments. B) Using the step method, determine the allocated costs and the total costs in each of the two production departments. Allocate the service departments in the following order: Maintenance (first), Accounting (second), and Administration (third).
Race Cars, Inc., produces model cars made from aluminum. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting, and Maintenance. The accumulated costs in the three service departments were $250,000, $400,000 and $200,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under $3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs.
The company decided that Administration costs should be allocated on the basis of square footage used by each production and service department. Accounting costs are allocated on the basis of number of employees. Maintenance cost are allocated on the basis of the dollar value of the equipment in each department. The use of each base by all departments during the current period is as follows:
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Service Departments |
Production Departments |
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|
Administration |
Accounting |
Maintenance |
Molding |
Painting |
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Costs: |
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Direct materials |
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|
$237,500 |
$210,000 |
|
Direct Labor |
|
|
|
$337,500 |
$200,000 |
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Direct |
|
|
|
$112,500 |
$75,000 |
|
Allocated OH |
$250,000 |
$400,000 |
$200,000 |
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|
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Allocation Base |
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|
|
|
|
|
Building Area |
10,000 |
30,000 |
20,000 |
360,000 |
90,000 |
|
Employees |
18 |
10 |
12 |
70 |
100 |
|
Equipment Value |
$6,000 |
$120,000 |
$17,500 |
$312,000 |
$162,000 |
Required:
A). Using the direct method, determine the allocated costs and the total costs in each of the two production departments.
B) Using the step method, determine the allocated costs and the total costs in each of the two production departments. Allocate the service departments in the following order: Maintenance (first), Accounting (second), and Administration (third).
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