Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 4.B, Problem 7C
CASE 4B-7 Step-Down Method versus Direct Method LO4-10, LO4-11
"This is really an odd situation,' said Tim Carter, mil manager of Highland Publishing Company. “We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time m the Binding Department. I would be inclined to think that the problem is with our
Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Building departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours.
| Department | TotalLabor-Hours | Square Feet of Space Occupied | NumberofEmployees | Machine-Hours | DirectLabor-Hours |
| Personnel | 20,000 | 4,000 | 10 | ||
| Custodial Services | 30,000 | 6,000 | 15 | ||
| Maintenance | 50,000 | 20,000 | 25 | ||
| Printing | 90,000 | 80,000 | 40 | 150,000 | 60,000 |
| Binding | 260,000 | 40,000 | 120 | 30,000 | 175,000 |
| 450,000 | 150,000 | 210 | 180,000 | 235,000 |
Budgeted overhead costs in each department for the current year are shown below:
Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments.
Required:
- Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor-hours as the allocation base in the Binding Department.
- Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.
- Assume that during the current year the company bids on a job that requires machine and labor time as follows:
1 The reciprocal method can also be used to allocate service department costs to operating departments. However, this method requires the use of simultaneous linear equations that are beyond the scope of this book.
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*Don't tell me we've lost another bid!" exclaimed Janice Hudson, president of Prime Products Inc. "I'm afraid so," replied Doug Martin,
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Problem 6-18 (Algo) Relevant Cost Analysis in a Variety of Situations [LO6-2, LO6-3, LO6-4]
Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 Daks each year at a selling
price of $60 per unit. The company's unit costs at this level of activity are given below:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expenses
Fixed selling expenses
Total cost per unit
$ 7.50
8.00
2.90
5.00 ($435,000 total)
2.70
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$28.60
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity to produce 113,100 Daks each year without any increase in fixed.
manufacturing overhead costs. The company could increase its unit sales by 30% above the present 87,000 units each year if it were
willing to increase the fixed selling expenses by $110,000. What is the financial…
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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