The Woodridge Manufacturing Company has two Production Departments: Cutting and Pasting. Each of these two departments uses the services provided by the Computing and Maintenance Departments, which both support the production functions and each other’s functions as well. Woodridge uses the step method of allocating these service department costs to the production departments. Computing is allocated on the basis of hours of department operations and Maintenance is allocated on the basis of departmental direct labor hours. Last period the following costs were recorded: Cutting Department overhead $400,000 Pasting Department overhead $600,000 Computing Department total costs $700,000 Maintenance Department total costs $300,000 Production Department data: Cutting Pasting Computing Maintenance Hours of operation 5,000 7,500 15,000 2,500 Direct labor hours recorded 4,000 8,000 4,000 8,000 Required: a. Determine the amount of Maintenance costs allocated to the Cutting and Pasting Departments using the step method of allocating service department costs. b. Determine the amount of Computing costs allocated to the Cutting and Pasting Departments using the step method of allocating service department costs. c. Determine the total overhead costs of the Cutting and Pasting Departments when this method of allocating service department costs is used. Hint: Allocation should begin with the service department that provided the highest percentage of total services to other service departments.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
The Woodridge Manufacturing Company has two Production Departments: Cutting and Pasting. Each of these two departments uses the services provided by the Computing and Maintenance Departments, which both support the production functions and each other’s functions as well. Woodridge uses the step method of allocating these service department costs to the production departments. Computing is allocated on the basis of hours of department operations and Maintenance is allocated on the basis of departmental direct labor hours. Last period the following costs were recorded:
|
Cutting Department |
$400,000 |
|
Pasting Department overhead |
$600,000 |
|
Computing Department total costs |
$700,000 |
|
Maintenance Department total costs |
$300,000 |
Production Department data:
|
|
Cutting |
Pasting |
Computing |
Maintenance |
|
Hours of operation |
5,000 |
7,500 |
15,000 |
2,500 |
|
Direct labor hours recorded |
4,000 |
8,000 |
4,000 |
8,000 |
Required:
a. Determine the amount of Maintenance costs allocated to the Cutting and Pasting Departments using the step method of allocating service department costs.
b. Determine the amount of Computing costs allocated to the Cutting and Pasting Departments using the step method of allocating service department costs.
c. Determine the total overhead costs of the Cutting and Pasting Departments when this method of allocating service department costs is used.
Hint: Allocation should begin with the service department that provided the highest percentage of total services to other service departments.
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