Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Chapter 4.B, Problem 6P
PROBLEM 4B-6 Step-Down Method versus Direct Method; Predetermined
| Factory Administration | $270,000 |
| Custodial Services | 68,760 |
| Personnel | 28,840 |
| Maintenance | 45,200 |
| Machining-overhead | 376,300 |
| Assembly-overhead | 175.900 |
| Total cost | $955,000 |
The company allocates service department costs to other departments in the order listed below.
Square
| Department | Number of Employees | Total Labor- Hours |
Feet of Space Occupied | Direct Labor- Hours |
Machine- Hours |
| Factory Administration ... | ... 12 | - | 5,000 | - | - |
| Custodial Services | ... 4 |
3,000 | 2,000 | - | - |
| Personnel | ... 5 |
5,000 | 3,000 | - | - |
| Maintenance | ... 25 |
22,000 | 10,000 | - | - |
| Machining | ... 40 |
30,000 | 70,000 | 20,000 | 70,000 |
| Assembly | ... 60 | 90,000 | 20,000 | 80,000 | 10,000 |
| 146 | 150.000 | 110,000 | 100,000 | 80,000 |
Machining and Assembly are operating departments: the other departments are service departments. Factory Administration is allocated based on labor-hours: Custodial Services based on square feet occupied: Personnel based on number of employees: and Maintenance based on machine-hours.
Required:
- Allocated services department costs to consuming departments by the step-down method. Then compute predetermined overhead rates in the operating departments using machine-hours as the allocated base in Machining and direct labor-hours as the allocation base in Assembly.
- Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in Machining and Assembly.
- Assume that the company doesn’t bother with allocating service department costs but simply computers a single plantwide overhead rate that divides the total overhead costs (both service department and operating costs) by the total direct labor-hours. Compute the plantwide overhead rate.
- Suppose a job requires machine and labor time as follows:
| Machine-Hours | Direct Labour-Hours | |
| Machine Department | 190 | 25 |
| Assembly Department | 10 | 75 |
| Total hours | 200 | 100 |
Using the overhead rates computed in (l). (I), and (3) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step-down method, the direct method, and the plantwide method.
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Students have asked these similar questions
Scenario
The Francis Corporation operates two service and two producing departments in its production of go carts. The budgeted overhead
costs directly associated with the departments and other pertinent data for an upcoming month are as follows:
Overhead Costs
Machine Hours
Number of Employees
19.67 (rounded)
16.67 (rounded)
3.00
14.74 (rounded)
Service & Production Departments Data
Service Departments
Maintenance
$144,000
20
O 15.87
Personnel
$80,000
16
Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours.
Assume the Assembly department uses direct labor hours to allocate its cost is overhead costs. For the upcoming month, the
estimated direct labor hours is estimated is 19,200 hours.
Question
What will be the predetermined overhead rate for the Assembly department for the upcoming month?
Production Departments
Tooling
$280,000
30,000
60
Assembly
$320,000
20,000
100
Question Content Area
Roget Factory has budgeted factory overhead for the year at $15,500,000. It plans to produce 2,000,000 units of product. Budgeted direct labor hours are 1,050,000, and budgeted machine hours are 750,000. Using a single plantwide factory overhead rate based on direct labor hours, the factory overhead rate for the year is
a. $77.50
b. $20.67
c. $7.75
d. $14.76
Question 1 Part II
Advent Corporation started to produce automated garbage bins. The company uses a standard cost system and determines that it should take two hours of direct labour to produce one garbage bin.The normal production capacity for the company’s bins is 62,500 units per year. The total budgetedoverhead at normal capacity is $450,000 comprised of $200,000 of variable costs and $250,000 of fixedcosts. Advent Corporation applies overhead on the basis of direct labour hours.During the current year, Advent Corporation produced 95,000 bins, worked 99,000 direct labour hours,and incurred variable overhead costs of $265,000 and fixed overhead costs of $326,200.
Required:a. Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.b. Compute the applied overhead for Advent for the year. c. Compute the total overhead variance.
Chapter 4 Solutions
Managerial Accounting
Ch. 4.A - EXERCISE 4A-1 Computation of Equivalent Units of...Ch. 4.A - EXERCISE 4A-2 Cost per Equivalent Unit-FIFO Method...Ch. 4.A - EXERCISE 4A-3 Assigning Costs to Units-FIFO Method...Ch. 4.A - EXERCISE 4A-4 Cost Reconciliation Report-EIFO...Ch. 4.A - EXERCISE 4A-5 Computation of Equivalent Units of...Ch. 4.A - EXERCISE 4A-6 Equivalent Units of Production-FIFO...Ch. 4.A - EXERCISE 4A-7 Equivalent Units of Production and...Ch. 4.A -
EXERCISE 4A-8 Equivalent Units of Production—FIFO...Ch. 4.A - EXERCISE 4A-9 Equivalent Units; Equivalent Units...Ch. 4.A - PROBLEM 4A-10 Equivalent Units of Production;...
Ch. 4.A - Prob. 11PCh. 4.A - Prob. 12CCh. 4.B - Prob. 1ECh. 4.B - EXERCISE 4B-2 Step-Down Method LO4-11 Madison Park...Ch. 4.B - Prob. 3ECh. 4.B - EXERCISE 4B-4 Direct Method LO4-10 Refer to the...Ch. 4.B - Prob. 5PCh. 4.B - PROBLEM 4B-6 Step-Down Method versus Direct...Ch. 4.B - CASE 4B-7 Step-Down Method versus Direct Method...Ch. 4 - Prob. 1QCh. 4 - In what ways are job-order and process costing...Ch. 4 - Why is cost accumulation simpler in a process...Ch. 4 - How many Work in Process accounts are maintained...Ch. 4 - Prob. 5QCh. 4 - Prob. 6QCh. 4 - Prob. 7QCh. 4 - Prob. 8QCh. 4 - Prob. 1AECh. 4 - This exercise relates to the Double Diamond Skis’...Ch. 4 - This exercise relates to the Double Diamond Skis’...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 -
Clopack Company manufactures one product that...Ch. 4 -
Clopack Company manufactures one product that...Ch. 4 -
Clopack Company manufactures one product that...Ch. 4 - Clopack Company manufactures one product that goes...Ch. 4 - Prob. 10F15Ch. 4 - Prob. 11F15Ch. 4 - Prob. 12F15Ch. 4 -
Clopack Company manufactures one product that...Ch. 4 - Prob. 14F15Ch. 4 - Prob. 15F15Ch. 4 - Prob. 1ECh. 4 - EXERCISE 4-2 Computation of Equivalent...Ch. 4 - Prob. 3ECh. 4 - EXERCISE 4-4 Assigning Costs to...Ch. 4 - EXERCISE 4-5 Cost Reconciliation...Ch. 4 - Prob. 6ECh. 4 - Prob. 7ECh. 4 - Prob. 8ECh. 4 -
EXERCISE 4-9 Equivalent Units and Cost per...Ch. 4 - Prob. 10ECh. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - PROBLEM 4-16 Comprehensive...Ch. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Prob. 19CCh. 4 - (
CASE 4-20 Ethics and the Manager, Understanding...
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