The document discusses allocating support department costs to producing departments. It provides examples of allocating costs using different allocation bases like number of employees, square footage, and labor hours. The sequential method allocates costs by considering interactions between support departments, while the direct method ignores these interactions. Multiple examples are given of calculating allocation rates and distributing support department costs using these rates.
Solutions Manual for Advanced Accounting 11th Edition by BeamsZiaPace
Full download : https://downloadlink.org/p/solutions-manual-for-advanced-accounting-11th-edition-by-beams/ Solutions Manual for Advanced Accounting 11th Edition by Beams
Solutions Manual for Advanced Accounting 11th Edition by BeamsZiaPace
Full download : https://downloadlink.org/p/solutions-manual-for-advanced-accounting-11th-edition-by-beams/ Solutions Manual for Advanced Accounting 11th Edition by Beams
Solution Manual Advanced Accounting by Baker 9e Chapter 16Saskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
Saham
Merupakan tanda kepemilikan di suatu perusahaan yang sahamnya kita beli di bursa. Ada 2 macam saham, yaitu saham biasa dan saham preferen
A. Saham biasa
Karakteristik saham biasa
Hak klaim terakhir atas aktiva perusahaan jika perusahaan dilikuidasi
Hak suara proporsional pada pemilihan direksi serta keputusan lain yang ditetapkan pada rapat umum pemegang saham
Dividen, jika perusahaan memperoleh laba dan disetujui di dalam RUPS
Hak memesan efek terlebih dahulu sebelum efek tersebut ditawarkan kepada masyarakat
Tidak ada jatuh tempo
“Blasteran” antara saham biasa dan obligasi
Memiliki sifat saham, misal tidak ada waktu jatuh tempo dan memiliki dividen
Sifat obligasi, misalnya dividen yang diberikan tetap (persentase dari nilai nominalnya)
Karakteristik saham Preferen
Pembayaran dividen dalam jumlah yang tetap
Hak klaim lebih dahulu dibandingkan saham biasa jika perusahaan dilikuidasi
Dapat dikonversikan menjadi saham biasa
Bila pada tahun tertentu dividen saham preferen tidak terbayar, ia akan diakumulasikan pada pembayaran dividen tahun mendatang
Indeks Saham
Merupakan angka yang menunjukkan berapa besar perubahan harga dari harga sebelumnya
Harian: perubahan harga hari ini dibanding hari kemarin,
Bulanan: perubahan bulan ini dibanding bulan sebelumnya
Periode waktu lainnya sesuai keinginan
Indeks Saham (2)
Untuk memberikan informasi yang lebih lengkap tentang perkembangan bursa kepada publik, BEI menyebarkan data pergerakan harga saham melalui media cetak dan elektronik. Satu indikator pergerakan harga saham tersebut adalah indeks harga saham. Saat ini, BEI mempunyai tujuh macam indeks saham:
IHSG, menggunakan semua saham tercatat sebagai komponen kalkulasi indeks.
Indeks sektoral, menggunakan semua saham yang masuk dalam setiap sektor.
Indeks lq45, menggunakan 45 saham terpilih setelah melalui beberapa tahapan seleksi.
Indeks individual, yang merupakan indeks untuk masing-masing saham didasarkan harga dasar.
Jakarta islamic index, merupakan indeks perdagangan saham syariah.
Indeks papan utama dan papan pengembangan, indeks yang didasarkan pada kelompok saham yang tercatat di bei yaitu kelompok papan utama dan papan pengembangan.
Indeks kompas100, menggunakan 100 saham pilihan harian kompas
Solution Manual Advanced Accounting by Baker 9e Chapter 16Saskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
Saham
Merupakan tanda kepemilikan di suatu perusahaan yang sahamnya kita beli di bursa. Ada 2 macam saham, yaitu saham biasa dan saham preferen
A. Saham biasa
Karakteristik saham biasa
Hak klaim terakhir atas aktiva perusahaan jika perusahaan dilikuidasi
Hak suara proporsional pada pemilihan direksi serta keputusan lain yang ditetapkan pada rapat umum pemegang saham
Dividen, jika perusahaan memperoleh laba dan disetujui di dalam RUPS
Hak memesan efek terlebih dahulu sebelum efek tersebut ditawarkan kepada masyarakat
Tidak ada jatuh tempo
“Blasteran” antara saham biasa dan obligasi
Memiliki sifat saham, misal tidak ada waktu jatuh tempo dan memiliki dividen
Sifat obligasi, misalnya dividen yang diberikan tetap (persentase dari nilai nominalnya)
Karakteristik saham Preferen
Pembayaran dividen dalam jumlah yang tetap
Hak klaim lebih dahulu dibandingkan saham biasa jika perusahaan dilikuidasi
Dapat dikonversikan menjadi saham biasa
Bila pada tahun tertentu dividen saham preferen tidak terbayar, ia akan diakumulasikan pada pembayaran dividen tahun mendatang
Indeks Saham
Merupakan angka yang menunjukkan berapa besar perubahan harga dari harga sebelumnya
Harian: perubahan harga hari ini dibanding hari kemarin,
Bulanan: perubahan bulan ini dibanding bulan sebelumnya
Periode waktu lainnya sesuai keinginan
Indeks Saham (2)
Untuk memberikan informasi yang lebih lengkap tentang perkembangan bursa kepada publik, BEI menyebarkan data pergerakan harga saham melalui media cetak dan elektronik. Satu indikator pergerakan harga saham tersebut adalah indeks harga saham. Saat ini, BEI mempunyai tujuh macam indeks saham:
IHSG, menggunakan semua saham tercatat sebagai komponen kalkulasi indeks.
Indeks sektoral, menggunakan semua saham yang masuk dalam setiap sektor.
Indeks lq45, menggunakan 45 saham terpilih setelah melalui beberapa tahapan seleksi.
Indeks individual, yang merupakan indeks untuk masing-masing saham didasarkan harga dasar.
Jakarta islamic index, merupakan indeks perdagangan saham syariah.
Indeks papan utama dan papan pengembangan, indeks yang didasarkan pada kelompok saham yang tercatat di bei yaitu kelompok papan utama dan papan pengembangan.
Indeks kompas100, menggunakan 100 saham pilihan harian kompas
Management AccountingActivity Based Costing vs Absorption Cost.docxinfantsuk
Management Accounting
Activity Based Costing vs Absorption Costing
Table of Contents
Budgeted Profit Statements 1
1.1 Absorption Costing 1
1.2 Activity Based Costing 3
1.3 Comments on the results 5
2.0 Discussion of the statement 6
References 9
0
2
1.0 Budgeted Profit Statements
1.1 Absorption Costing
Traditional absorption costing involves the calculation of product cost, using direct and indirect variable costs and fixed and variable overheads, which are substituted over the complete production. Overhead cost substitution is based upon the process activity that drives the cost. Machine hours and assembly hours are two example activities that influence product development; overheads are allocated based upon the hours consumed in each department.
The following table summarises the activity levels involved in the production process:
Product
Units
Machine (Hours)
Assembly (Hours)
Setups
Orders
Suppliers
XYI
50,000
100,000
350,000
120
8,000
3,000
YZT
40,000
200,000
120,000
200
8,000
4,000
ABW
30,000
120,000
60,000
200
16,000
4,200
Total
120,000
420,000
530,000
520
32,000
11,200
When the cost is allocated to each product, finding each product’s contribution towards overhead provides a clearer picture. The following table summarises the total contributions of the three products.
Total Contribution
Products
Selling Price (£)
(1)
Cost Price (£)
(2)
Contribution (£)
(3)= (1)-(2)
Units
(4)
Total Contribution (5)= (3)x(4)
XYI
45
32
13
50,000
650,000
YZT
95
84
11
40,000
440,000
ABW
73
65
8
30,000
240,000
The absorption rate on which the overhead cost is allocated to the products is also important in making the profit and loss statement. Since this involves two significant activities, the overhead is allocated over these two cost drivers.
· O/H Absorption rate (Machine Hours)
Overheads / machine hours = £504,000 / 420,000 = £1.20/hour
· O/H Absorption rate (Assembly Hours)
Overheads / assembly hours = £437,000 / 530,000 = £0.8245/hour
Based upon absorption rates, the following table summarises the division of overhead costs over the three products.
Machine Hours
Assembly Hours
Products
Hours
(1)
Rate
(2)
Overheads
(3)=(1)*(2)
Hours
(4)
Rate
(5)
Overheads
(6)=(4)*(5)
Total O/H
(7)=(3)+(6)
XYI
100,000
1.20
120,000
350,000
0.8245
288,575
408,575
YZT
200,000
1.20
240,000
120,000
0.8245
98,940
298,940
ABW
120,000
1.20
144,000
60,000
0.8245
49,470
169,470
504,000
436,985
940,985
· Statement of Profit / (Loss)
Using Absorption Costing Method
Revenue
XYI
YZT
ABW
(1) Units
50,000 units
40,000 units
30,000 units
(£)
(£)
(£)
(£)
(2) Sale Price
45
95
73
(3) Cost Price
32
84
65
(4) Contribution (2) – (3)
13
11
8
Total Contribution (4) * (1)
650,000
440,000
240,000
1,330,000
Overheads *
(408,575)
(298,940)
(169,470)
(940,985)
Net Profit
241,425
101,060
46,530
389,015
1.2 Activity Based Costing
The focus of activity based costing is upon departmentalizing overheads cost; this cost can be attributed to th ...
Konsep Balanced Score Card. Penilaian kinerja dilihat dari 4 perspektif yaitu perspektif keuangan, konsumen, learn and growth dan proses bisnis internal.
Makalah Analisis PT Kereta API Indonesia . membahas analisis strategik dalam perusahaan kereta api, dimana dampak peraturan harga pesawat tidak ada penetapan batas bawah maka kereta api berdampak.
Makalah Analisis PT Kereta API Indonesia . membahas analisis strategik dalam perusahaan kereta api, dimana dampak peraturan harga pesawat tidak ada penetapan batas bawah maka kereta api berdampak.
Dmfi booklet indonesian. isi petisi nya yah jangan lupa klik www.dogmeatfreeindonesia.org
tidak sampai 1 menit isi petisi ini agar indonesia bebas dari daging anjing, anjing layak diperlakukan layak dan lebih baik.
tolong ya teman - teman
Dmfi booklet indonesian. isi petisi nya yah jangan lupa klik www.dogmeatfreeindonesia.org
tidak sampai 1 menit isi petisi ini agar indonesia bebas dari daging anjing, anjing layak diperlakukan layak dan lebih baik.
tolong ya teman - teman
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
1. 118899
CHAPTER 7
SUPPORT-DEPARTMENT COST ALLOCATION
QUESTIONS FOR WRITING AND DISCUSSION
1. Stage one assigns support-department
costs to producing departments. Costs are
assigned using factors that reflect the con-
sumption of the services by each producing
department. Stage two allocates the costs
assigned to the producing departments (in-
cluding service costs and direct costs) to the
products passing through the producing de-
partments.
2. Support-department costs are part of the
cost of producing a product. Knowing the in-
dividual product costs is helpful for develop-
ing bids and cost-plus prices.
3. GAAP require that all manufacturing costs
be assigned to products for inventory valua-
tion.
4. Allocating support-department costs makes
users pay attention to the level of service ac-
tivity consumed and also provides an incen-
tive for them to monitor the efficiency of the
support departments.
5. Without any allocation of support-
department costs, users may view services
as a free good and consume more of the
service than is optimal. Allocating support-
department costs would encourage manag-
ers to use the service until such time as the
marginal cost of the service is equal to the
marginal benefit.
6. Since the user departments are charged for
the services provided, they will monitor the
performance of the support department. If
the service can be obtained more cheaply
externally, then the user departments will be
likely to point this out to management.
Knowing this, a manager of a support de-
partment will exert effort to maintain a com-
petitive level of service.
7. The identification and use of causal factors
ensures that support-department costs are
accurately assigned to users. This increases
the legitimacy of the control function and
enhances product costing accuracy.
8. a. Number of employees; b. Square foo-
tage; c. Pounds of laundry; d. Orders
processed; e. Maintenance hours worked; f.
Number of employees; and g. Number of
transactions processed.
9. Allocating actual costs passes on the effi-
ciencies or inefficiencies of the support de-
partment, something which the manager of
the producing department cannot control. Al-
locating budgeted costs avoids this problem.
10. The direct method allocates the direct costs
of each support department directly to the
producing departments. No consideration is
given to the fact that other support depart-
ments may use services. The sequential
method allocates support-department costs
sequentially. First, the costs of the center
providing the greatest service to all user de-
partments, including other support depart-
ments, are allocated. Next the costs of the
second greatest provider of services are al-
located to all user departments, excluding
any department(s) that has already allocated
costs. This continues until all support-
department costs have been allocated. The
principal difference in the two methods is the
fact that the sequential method considers
some interactions among support depart-
ments and the direct method ignores inte-
ractions.
11. Yes, the reciprocal method is more accurate
because it fully considers interactions
among support departments. However, the
reciprocal method is much more complex
and can be difficult for managers to under-
stand. If the results are similar, the simpler
method should be used.
12. A joint cost is a cost incurred in the simulta-
neous production of two or more products.
At least one of these joint products must be
a main product. It is possible for the joint
production process to produce a product of
relatively little sales value relative to the
main product(s); this product is known as a
by-product.
13. Joint costs occur only in cases of joint pro-
duction. A joint cost is a common cost, but a
common cost is not necessarily a joint cost.
Many overhead costs are common to the
products manufactured in a factory but do
not signify a joint production process.
2. 119900
EXERCISES
7–1
a. support
b. support
c. producing
d. producing
e. support
f. support
g. producing
h. producing
i. support
j. support
k. producing
l. support
m. producing
n. support
o. support
7–2
a. support
b. support
c. support
d. support
e. support
f. producing
g. producing
h. support
i. support
j. producing
k. producing
l. support
m. support
n. support
o. support
7–3
a. direct labor hours;
number of employees
b. number of processing hours
c. labor hours; units produced
d. number of orders;
materials cost
e. materials cost;
orders received
f. orders shipped
g. number of employees
h. square feet
i. square feet
j. kilowatt-hours
k. number of employees;
direct labor cost
l. square feet
m. machine hours;
number of repair jobs
n. cubic feet
3. 119911
7–4
1. Charging rate = ($80 × 100 hours)/400 units = $20 per apartment unit
2. Amount charged = ($80 × 130 hours) = $10,400
Amount actually charged apartment building owners:
Number of Charge Total
Units × per Unit = Charges
The Roost 130 $20 $ 2,600
Magnolia House 70 20 1,400
Oak Park 120 20 2,400
Wisteria Lane 50 20 1,000
Elm Street 30 20 600
Total 400 $ 8,000
Number of Charge Total
Hours × per Hour = Charges
The Roost 35 $80 $ 2,800
Magnolia House 10 80 800
Oak Park 45 80 3,600
Wisteria Lane 15 80 1,200
Elm Street 25 80 2,000
Total 130 $10,400
3. The use of number of legal hours as the charging base is much better than the
number of apartment units. The number of legal hours is directly associated with
the attorney’s charges. The number of units is, apparently, a poor proxy for the
use of legal services. Two problems are immediately evident. First, the use of the
unit charge means that Stewart will only be charging actual legal fees when the
number of units times the per-unit rate happens to equal the number of hours
times the per-hour rate. In this case, he will not recoup all of his spending on le-
gal fees. That occurred here, where Stewart charged the owners only $8,000 for
legal fees, but paid the attorney $10,400. In other years, the amount charged the
apartment owners will be more than the amount charged by the attorney. Second,
it is possible for apartment owners to have a smaller or larger proportion of units
than of hours. Even in the example above, we can see that Elm Street has a small
percentage of units, but causes a larger proportion of legal fees.
4. 119922
7–5
1. Single charging rate = ($320,000 + $400,000)/24,000 = $30/DLH
2. Charge to the Used Car Sales Dept. = $517 + ($30 × 12 DLH) = $877
3. Actual DLH × Charging Rate + DM = Total Charges
New Car Sales 1,000 $30 $ 3,100 $ 33,100
Used Car Sales 4,700 30 7,860 148,860
Service 19,400 30 86,300 668,300
Total 25,100 $97,260 $850,260
7–6
1. Billing rate for maintenance = $193,200/4,200 = $46/maintenance hour
2. $46 × 370 = $17,020
3. Total charged ($46 × 4,110) $ 189,060
Actual cost 190,060
Maintenance cost undercharged $ 1,000
5. 119933
7–7
1. $460 = $46 × number of hours of maintenance
Number of hours of maintenance = 10 hours
The controller must have looked up the usage of maintenance by the Assembly
Department, found that it had used 10 hours, and multiplied those hours by the
single charging rate of $46. In that case, $460 would be correct.
2. Rate for routine maintenance = $48,000/2,000 = $24/routine maint. hour
Rate for technical maintenance = $145,200/2,200 = $66/tech. maint. hour
New charge for Assembly Department = $24 × 10 routine hours = $240
3. When single charging rates are used by companies, they must be aware that
changes in the way work is performed may require changes in the charging
rate(s). In this case, the additional complexity caused by the computer-controlled
equipment means that a single charging rate does not adequately control for the
differences in cost caused by different departments. Multiple charging rates do a
better job of charging the using department for the resources provided by the
support departments.
6. 119944
7–8
1. Allocation ratios for S1 based on number of employees:
Cutting = 120/(120 + 80) = 0.60
Sewing = 80/(120 + 80) = 0.40
Allocation ratios for S2 based on number of maintenance hours:
Cutting = 15,000/(15,000 + 5,000) = 0.75
Sewing = 5,000/(15,000 + 5,000) = 0.25
2. Support Departments Producing Departments
S1 S2 Cutting Sewing
Direct costs $200,000 $ 140,000 $ 122,000 $ 90,500
Allocate:
S1 (200,000) — 120,000 80,000
S2 — (140,000) 105,000 35,000
Total $ 0 $ 0 $ 347,000 $ 205,500
7–9
1. Allocation ratios for S1 based on number of employees:
S2 = 50/(50 + 120 + 80) = 0.20
Cutting = 120/(50 + 120 + 80) = 0.48
Sewing = 80/(50 + 120 + 80) = 0.32
Allocation ratios for S2 based on number of maintenance hours:
Cutting = 15,000/(15,000 + 5,000) = 0.75
Sewing = 5,000/(15,000 + 5,000) = 0.25
2.
Support Departments Producing Departments
S1 S2 Cutting Sewing
Direct costs $ 200,000 $ 140,000 $ 122,000 $ 90,500
Allocate:S1 (200,000) 40,000 96,000 64,000
S2 — (180,000) 135,000 45,000
Total $ 0 $ 0 $ 353,000 $ 199,500
7. 119955
7–10
1. Allocation ratios:
Proportion of Output Used by Department
S1 S2 Cutting Sewing
S1 — 0.2000 0.4800 0.3200
S2 0.0566 — 0.7075 0.2358
2. S1 = Direct costs + Share of S2 costs
S1 = $200,000 + 0.0566(S2)
S2 = Direct costs + Share of S1 costs
S2 = $140,000 + 0.200(S1)
S2 = $140,000 + 0.200 [$200,000 + 0.0566(S2)]
S2 = $140,000 + $40,000 + 0.0113(S2)
0.9887S2 = $180,000
S2 = $182,057
Substituting $180,057 for S2 into the S1 equation yields total S1 cost:
S1 = $200,000 + 0.0566($182,057)
= $200,000 + $10,304 = $210,304
3. Support Departments Producing Departments
S1 S2 Cutting Sewing
Direct costs $200,000 $140,000 $122,000 $ 90,500
Allocated from:
S1 (210,304) 42,061 100,946 67,297
S2 10,304 (182,057) 128,805 42,929
Total $ 0 $ (4)* $351,751 $200,726
*Difference due to rounding.
8. 119966
7–11
1. Baking Dept. overhead rate = $150,000/6,250 = $24 per MHr
Decorating Dept. overhead rate = $42,000/6,000 = $7 per DLH
2. Cost per batch:
Direct materials $55
Direct labor 42
Overhead:
Baking Dept. (2 × $24) 48
Total $145
Cost per loaf = $145/100 = $1.45
3. Cost of Dearman wedding cake:
Direct materials $ 20
Direct labor 50
Overhead:
Baking Dept. (1 × $24) 24
Decorating Dept. (8 × $7) 56
Total cost $150
Price = 3 × $150 = $450
9. 119977
7–12
1. Allocation ratios:
Shaping Firing
Kilowatt-hours1
0.20 0.80
Square feet2
0.75 0.25
Direct labor hours3
0.71 0.29
1
based on kilowatt hours: 20,000/(20,000+80,000); 80,000/(20,000+80,000)
2
based on square feet: 24,000/(24,000+8,000); 8,000/(24,000+8,000)
3
based on direct labor hours: 10,000/(10,000+4,000); 4,000/(10,000+4,000)
Cost assignment:
Power Gen. Factory HR Shaping Firing
Direct overhead costs $90,000 $$167,000 $84,000 $72,000 $230,000
Allocate:
Power ($90,000) - - 18,000 72,000
General Factory - (167,000) - 125,250 41,750
Human Resources - - 84,000 59,640 24,360
Total after allocation $0 $0 $0 $274,890 $368,110
2. Departmental overhead rates:
Shaping: $274,890/10,000 = $27.49 per DLH*
Firing: $368,110/4,000 = $92.03 per DLH*
*Rounded
10. 119988
7–13
1. Assume the support-department costs are allocated in order of highest to lowest
cost: General Factory, Power, and Human Resources.
Power GF HR Shaping Firing
Square feet 0.05 — 0.15 0.60 0.20
Kilowatt-hours — — 0.20 0.16 0.64
Labor hours — — — 0.71 0.29
Direct costs $90,000 $167,000 $84,000 $ 72,000 $230,000
General Factory1
:
(0.05 × $167,000) 8,350 (8,350)
(0.15 × $167,000) (25,050) 25,050
(0.60 × $167,000) (100,200) 100,200
(0.20 × $167,000) (33,400) 33,400
Power2
:
(0.20 × $98,350) (19,670) 19,670
(0.16 × $98,350) (15,736) 15,736
(0.64 × $98,350) (62,944) 62,944
Human Resources:
(0.71 × $128,720) (91,391) 91,391
(0.29 × $128,720) (37,329) 37,329
Total $ 0 $ 0 $ 0 $279,327 $363,673
1
based on square feet:
Power = 2,000/(2,000+6,000+24,000+8,000)
HR = 6,000/(2,000+6,000+24,000+8,000)
Shaping = 24,000/(2,000+6,000+24,000+8,000)
Firing = 8,000/(2,000+6,000+24,000+8,000)
2
based on kilowatt hours :
HR = 25,000/(25,000+20,000+80,000)
Shaping = 20,000/(25,000+20,000+80,000)
Firing = 80,000/(25,000+20,000+80,000)
Allocation Ratios for HR department based on direct labor hours :
Shaping 10,000/(10,000+4,000)
Firing 4,000/(10,000+4,000)
2. Shaping: $279,327/10,000 = $27.93 per DLH*
Firing: $403,576/4,000 = $90.92 per DLH*
*Rounded
11. 119999
7-14
Units Percent × Joint Cost = Allocated Joint Cost
Andol 1,000 0.1250 $100,000 $12,500
Incol 1,500 0.1875 100,000 18,750
Ordol 2,500 0.3125 100,000 31,250
Exsol 3,000 0.3750 100,000 37,500
Total 8,000 $100,000
7-15
Price at Market Value Joint Allocated
Units Split-off at Split-off Percent Cost Cost
Andol 1,000 $20.00 $ 20,000 0.0556 $100,000 $ 5,560
Incol 1,500 75.00 112,500 0.3125 100,000 31,250
Ordol 2,500 64.00 160,000 0.4444 100,000 44,440
Exsol 3,000 22.50 67,500 0.1875 100,000 18,750
Total 8,000 $360,000 $100,000
7-16
1. Eventual Separable Hypothetical
Units Price Market Value Costs Market Value Percent
Ups 39,000 $2.00 $78,000 $18,000 $60,000 0.60
Downs 21,000 2.18 45,780 5,780 40,000 0.40
Total $100,000
Ups Downs
Joint cost $42,000 $42,000
× Percent of hypothetical market value × 0.60 × 0.40
Allocated joint cost $25,200 $16,800
2. Value of ups at split-off (39,000 × $1.80) $70,200
Value of ups when processed further $78,000
Less: Further processing cost 18,000
Incremental value of further processing $60,000
Ups should NOT be processed further as there will $10,200 more profit if sold at split-
off.
12. 220000
7–17
1. HR Power Mixing Packaging
HR1
— 0.3000 0.3500 0.3500
Power2
0.0769 — 0.2308 0.6923
1
based on payroll:
90,000/(90,000+105,000+105,000)
105,000/(90,000+105,000+105,000)
105,000/(90,000+105,000+105,000)
2
based on kilowatt hours:
5,000/(5,000+15,000+45,000)
15,000/(5,000+15,000+45,000)
45,000/(5,000+15,000+45,000)
P = $150,000 + 0.3HR
P = $150,000 + 0.3($110,000 + 0.0769P)
P = $150,000 + $33,000 + 0.0231P
0.9769P = $183,000
P = $187,327
HR = $110,000 + 0.0769P
HR = $110,000 + 0.0769($187,327)
HR = $110,000 + $14,405
HR = $124,405
Human
Resources Power Mixing Packaging
Direct overhead costs $110,000 $150,000 $100,000 $280,000
Allocated from:
HR (124,405) 37,321 43,542 43,542
Power 14,409 (187,327) 43,235 129,686
Total $ 0 $ (5)* $186,777 $453,228
*Difference due to rounding.
2. Mixing: $186,777/20,000 = $9.34 per DLH
Packaging: $453,228/30,000 = $15.11 per DLH
13. 220011
7–18
1. Support Departments Producing Departments
HR Power Mixing Packaging
Direct overhead $110,000 $150,000 $100,000 $280,000
Allocate HR1
(110,000) - 55,000 55,000
Allocate Power - (150,000) 37,500 112,500
Total $ 0 $ 0 $192,500 $447,500
1
based on payroll:
Mixing = 105,000/(105,000+105,000) = 0.50
Packaging = 105,000/(105,000+105,000) = 0.50
2
based on kilowatt hours:
Mixing = 15,000/(15,000+45,000) = 0.25
Packaging = 45,000/(15,000+45,000) = 0.75
2. Mixing: $192,500/20,000 = $9.63 per DLH
Packaging: $447,500/30,000 = $14.92 per DLH
The reciprocal method is more accurate because support-department costs are
allocated to other support departments. Using the direct method, Human Re-
sources and Power do not receive any other support department costs. How im-
portant the increased accuracy is for this example is not clear. Some might argue
that the departmental rates do not differ enough to justify using the more compli-
cated reciprocal method.
14. 220022
7–19
1. Support Departments Producing Departments
HR Power Mixing Packaging
Direct overhead $110,000 $150,000 $100,000 $280,000
Allocate HR1
(110,000) 33,000 38,500 38,500
Allocate Power2
- (183,000) 45,750 137,250
Total $ 0 $ 0 $184,250 $455,750
1
based on payroll:
Power = 90,000/(90,000+105,000+105,000) = 0.30
Mixing = 105,000/(90,000 + 105,000+105,000) = 0.35
Packaging = 105,000/(90,000 + 105,000+105,000) = 0.35
2
based on kilowatt hours:
Mixing = 15,000/(15,000+45,000) = 0.25
Packaging = 45,000/(15,000+45,000) = 0.75
2. Mixing: $184,250/20,000 = $9.21 per DLH
Packaging: $455,750/30,000 = $15.19 per DLH
The sequential method is more accurate than the direct method and less accurate
than the reciprocal method. The reason is that at least some support-department
reciprocity is accounted for using the sequential method, while none is recog-
nized under the direct method.
15. 220033
7–20
A = $35,000 + 0.3B
B = $40,000 + 0.2A
A = $35,000 + 0.3($40,000 + 0.2A)
A = $47,000 + 0.06A
0.94A = $47,000
A = $50,000
B = $40,000 + 0.2($50,000)
B = $50,000
Allocation ratios (ratios for D obtained by “plugging”):
Dept. A Dept. B Dept. C Dept. D
Dept. A — 0.2 0.2 0.6*
Dept. B 0.3 — 0.4 0.3**
*(1.0 – 0.2 – 0.2)
**(1.0 – 0.3 – 0.4)
Dept. C Dept. D
Allocate A:
(0.2 × $50,000) $10,000
(0.6 × $50,000) $30,000
Allocate B:
(0.4 × $50,000) 20,000
(0.3 × $50,000) 15,000
16. 220044
7–21
1. General
HR Factory Grinding Assembly
Direct costs $ 70,000 $ 230,000 $ 63,900 $ 39,500
Allocate:
HR1
(70,000) — 14,000 56,000
Gen. Factory2
— (230,000) 57,500 172,500
Total OH $ 0 $ 0 $135,400 $268,000
1
based on payroll: 20,000/(20,000+80,000)=20%; 80,000/(20,000+80,000)=80%
2
based on square feet: 2,000/(2,000+6,000)=25%; 6,000/(2,000+6,000)=75%
2. Grinding OH rate: $135,400/4,000 = $33.85 per MHr
Assembly OH rate: $268,000/80,000 = $3.35 per DLH
3. Prime costs $123.00
Grinding (1 × $33.85) 33.85
Assembly (12 × $3.35) 40.20
Unit product cost $197.05
7–22
1. General
HR Factory Grinding Assembly
Direct costs $ 70,000 $ 230,000 $ 63,900 $ 39,500
Allocate:
Gen. Factory1
76,667 (230,000) 38,333 115,000
HR2
(146,667) — 29,333 117,334
Total OH $ 0 $ 0 $131,566 $271,834
1
HR = 4,000/(4,000+2,000+6,000)=33.33%
Grinding = 2,000/(4,000+2,000+6,000)=16.67%
Assembly = 6,000/(4,000+2,000+6,000)=50%
2
Grinding = 20,000/(20,000+80,000)=20%
Assembly = 80,000/(20,000+80,000)=80%
2. Grinding OH rate: $131,566/4,000 = $32.89 per MHr (rounded)
Assembly OH rate: $271,834/80,000 = $3.40 per DLH (rounded)
3. Prime cost $123.00
Grinding (1 × $32.89) 32.89
Assembly (12 × $3.40) 40.80
Unit product cost $196.69
7–23
20. 220088
7–26
1. a. Direct method
Maintenance Power Drilling Assembly
Direct costs $320,000 $400,000 $163,000 $ 90,000
Allocate:
Maintenance1
(320,000) 0 256,000 64,000
Power2
0 (400,000) 40,000 360,000
Total $ 0 $ 0 $459,000 $514,000
1
Drilling: 30,000/(30,000+7.500) = 0.80
Assembly: 7,500/(30,000+7,500) = 0.20
2
Drilling: 36,000/(36,000+324,000) = 0.10
Assembly: 324,000/(36,000+324,000) = 0.90
Drilling: $459,000/30,000 = $15.30 per MHr
Assembly: $514,000/40,000 = $12.85 per DLH
Prime costs $1,817.00
Drilling (2 × $15.30) 30.60
Assembly (50 × $12.85) 642.50
Total cost $2,490.10
Markup (15%) 373.52
Bid price $2,863.62
21. 220099
7–26 Continued
b. Reciprocal method
Maintenance Power Drilling Assembly
Machine hours1
— 0.375 0.500 0.125
Kilowatt-hours2
0.100 — 0.090 0.810
1
Power: 22,500/(22,500+30,000+7.500) = 0.375
Drilling: 30,000/(22,500+30,000+7.500) = 0.500
Assembly: 7,500/(22,500+30,000+7,500) = 0.125
2
Maintenance: 40,000/(40,000+36,000+324,000) = 0.100
Drilling: 36,000/(40,000+36,000+324,000) = 0.090
Assembly: 324,000/(40,000+36,000+324,000) = 0.810
M = $320,000 + 0.1P
P = $400,000 + 0.375M
M= $320,000 + 0.1($400,000 + 0.375M)
M = $320,000 + $40,000 + 0.0375M
0.9625M = $360,000
M = $374,026
P = $400,000 + 0.375M
P = $400,000 + 0.375($374,026)
P = $400,000 + $140,260
P = $540,260
Maintenance Power Drilling Assembly
Direct cost $320,000 $400,000 $163,000 $90,000
Allocate:
Maintenance ($374,026) 140,260 187,013 46,753
Power 54,026 (540,260) 48,623 437,611
Total $ 0 $ 0 $398,636 $574,364
Drilling: $398,636/30,000 = $13.29 per MHr (rounded)
Assembly: $574,364/40,000 = $14.36 per DLH (rounded)
Prime costs $1,817.00
Drilling (2 × $13.29) 26.58
Assembly (50 × $14.36) 718.00
Total cost $2,561.58
Markup (15%) 384.24
Bid price $2,945.82
2. The reciprocal method is more accurate, as it takes into account the use of
support departments by other support departments.
22. 221100
7–27
1. a. Sequential method: Allocate Maintenance first, then Power
Maintenance Power Drilling Assembly
Direct costs $ 320,000 $ 400,000 $163,000 $ 90,000
Allocate:
Maintenance1
(320,000) 120,000 160,000 40,000
Power2
0 (520,000) 52,000 468,000
Total $ 0 $ 0 $375,000 $598,000
1
Power: 22,500/(22,500+30,000+7.500) = 0.375
Drilling: 30,000/(22,500+30,000+7.500) = 0.500
Assembly: 7,500/(22,500+30,000+7,500) = 0.125
2
Drilling: 36,000/(36,000+324,000) = 0.100
Assembly: 324,000/(36,000+324,000) = 0.900
Drilling: $375,000/30,000 = $12.50 per MHr
Assembly: $598,000/40,000 = $14.95 per DLH
Prime costs $1,817.00
Drilling (2 × $12.50) 25.00
Assembly (50 × $14.95) 747.50
Total cost $2,589.50
Markup (15%) 388.43
Bid price $2,977.93
23. 221111
7–27 Concluded
b. Sequential method: Allocate Power first, then Maintenance
Maintenance Power Drilling Assembly
Direct costs $ 320,000 $ 400,000 $163,000 $ 90,000
Allocate:
Power1
40,000 (400,000) 36,000 324,000
Maintenance2
(360,000) 0 288,000 72,000
Total $ 0 $ 0 $487,000 $486,000
1
Maintenance: 40,000/(40,000+36,000+324,000) = 0.10
Drilling: 36,000/(40,000+36,000+324,000) = 0.09
Assembly: 324,000/(40,000+36,000+324,000) = 0.81
2
Drilling: 30,000/(30,000+7.500) = 0.80
Assembly: 7,500/(30,000+7,500) = 0.20
Drilling: $487,000/30,000 = $16.23 per MHr (rounded)
Assembly: $486,000/40,000 = $12.15 per DLH
Prime costs $1,817.00
Drilling (2 × $16.23) 32.46
Assembly (50 × $12.15) 607.50
Total cost $2,456.96
Markup (15%) 368.54
Bid price $2,825.50
2. Yes, there is a difference in the bids. Ranking Maintenance first results in a higher
dollar allocation to Power ($120,000) than the allocation from Power to Mainten-
ance ($40,000). Then, the greater usage of Power by Assembly results in a higher
allocation to Assembly when Maintenance is ranked first. Thus, the ranking of
Maintenance first gives a greater chance for support-department interaction to be
reflected in the ultimate overhead rates. (These results can be compared with the
results using the reciprocal method in Problem 7–26.)
24. 221122
7–28
1.
Units Percent × Joint Cost = Allocated Joint Cost
Two Oil 300,000 0.4545 $10,000,000 $4,545,000
Six Oil 240,000 0.3636 10,000,000 3,636,000
Distillates 120,000 0.1818 10,000,000 1,818,000
Total 660,000 $9,999,000
2.
Price at Market Value Joint Allocated
Units Split-off at Split-off Percent Cost Cost
Two Oil 300,000 $20 $6,000,000 0.4000 $10,000,000 $4,000,000
Six Oil 240,000 30 7,200,000 0.4800 10,000,000 4,800,000
Distillates 120,000 15 1,800,000 0.1200 10,000,000 1,200,000
Total 660,000 $15,000,000 $10,000,000
30. 221188
7–29 Continued
Allocation ratios for variable costs:
Cost
Cost Driver Personnel Accounting Mixing Cooking Packaging
Machine hours 0.200 0.500 0.300
Employees (1) 0.137 0.178 0.274 0.137 0.274
Employees (2) 0.206 0.317 0.159 0.317
Items 0.329 0.318 0.353
Note 1: Custodial services was not included as it had no direct variable costs.
Note 2: The order of allocation was based on the magnitude of direct variable
costs as follows: maintenance, cafeteria, personnel, and cost accounting.
Note 3: Employees is the base for allocating cafeteria and personnel. Employees
(1) pertains to cafeteria and employees (2) to personnel.
31. 221199
7–29 Continued
Allocation of variable costs:
Cafe. Pers. Cost Acc. Mixing Cook. Pack.
Direct costs $40,000 $20,000 $16,500 $20,000 $10,000 $40,000
Maintenance:
(0.200 × $100,000) 20,000
(0.500 × $100,000) 50,000
(0.300 × $100,000) 30,000
Cafeteria:
(0.137 × $40,000) 5,480
(0.178 × $40,000) 7,120
(0.274 × $40,000) 10,960
(0.137 × $40,000) 5,480
(0.274 × $40,000) 10,960
Personnel:
(0.206 × $25,480) 5,249
(0.317 × $25,480) 8,077
(0.159 × $25,480) 4,051
(0.317 × $25,480) 8,077
Accounting:
(0.329 × $28,869) 9,498
(0.318 × $28,869) 9,180
(0.353 × $28,869) 10,191
Total $68,535 $78,711 $99,228
Note: Total of post-allocation variable costs does not equal pre-allocation
total due to rounding error.
32. 222200
7–29 Concluded
4. Overhead rates:
Fixed rates:
Mixing: $251,812/30,000 = $8.39 per DLH*
Cooking: $197,871/10,000 = $19.79 per MHr*
Packaging: $155,405/50,000 = $3.11 per DLH*
Variable rates:
Mixing: $68,535/30,000 = $2.28 per DLH*
Cooking: $78,711/10,000 = $7.87 per MHr*
Packaging: $99,228/50,000 = $1.98 per DLH*
*Rounded
5. Selling price computation:
a. With direct method:
Prime costs $ 60,000
Overhead* 77,220
Total costs $137,220
Markup (30%) 41,166
Price $178,386
*($8.48 + $2.31)1,000 + ($19.60 + $7.72)1,500 + ($3.09 + $2.00)5,000
b. With sequential method:
Prime costs $ 60,000
Overhead* 77,610
Total costs $137,610
Markup (30%) 41,283
Price $178,893
*($8.39 + $2.28)1,000 + ($19.79 + $7.87)1,500 + ($3.11 + $1.98)5,000
The methods assign costs differently and produce different prices for the batch
of chocolate bars. The difference in price is over $500. This amount could be sig-
nificant, depending on the competitive conditions facing the firm. Assuming that
the sequential method provides more accurate cost assignments, this method
should be used if the increased accuracy is important for the firm’s well-being.
Otherwise, the firm should use the much simpler direct method.
33. 222211
7–30
1. Baton Rouge ($781,000/$4,641,000)($146,500)* = $24,653
Kilgore ($750,000/$4,641,000)($146,500) = $23,675
Longview ($912,000/$4,641,000)($146,500) = $28,789
Paris ($1,098,000/$4,641,000)($146,500) = $34,660
Shreveport ($1,100,000/$4,641,000)($146,500) = $34,723
*($18)(4,250) + $70,000 = $146,500
2. Share of Purchasing Department fixed costs based on 2005 revenues:
Baton Rouge ($675,000/$4,500,000)($70,000) = $10,500
Kilgore ($720,000/$4,500,000)($70,000) = $11,200
Longview ($900,000/$4,500,000)($70,000) = $14,000
Paris ($1,125,000/$4,500,000)($70,000) = $17,500
Shreveport ($1,080,000/$4,500,000)($70,000) = $16,800
Variable Cost + Fixed Cost = Total
Baton Rouge ($18)(1,475) = $26,550 + $10,500 = $37,050
Kilgore ($18)(1,188) = $21,384 + $11,200 = $32,584
Longview ($18)(500) = $9,000 + $14,000 = $23,000
Paris ($18)(525) = $9,450 + $17,500 = $26,950
Shreveport ($18)(562) = $10,116 + $16,800 = $26,916
3. Method 2 allocates cost on the basis of the cost driver which causes it and would
be more likely to encourage managers to use Purchasing Department time effi-
ciently. Method 1 assigns purchasing costs according to a base that may not be
causally related. Therefore, an apartment complex with stable rentals from one
year to the next may still experience wild fluctuations in allocated cost due to
changing rental patterns of other apartment complexes.
34. 222222
7–31
1. Department A Department B
Direct overhead $200,000 $ 800,000
Maintenance:
(1/8)($500,000) 62,500
(7/8)($500,000) 437,500
Power:
(1/6)($225,000) 37,500
(5/6)($225,000) 187,500
Setups:
(40/200)($150,000) 30,000
(160/200)($150,000) 120,000
General Factory:
(0.272)($625,000) 170,000
(0.728)($625,000) 455,000
Total $500,000 $ 2,000,000
Dept. A overhead rate: $500,000/200,000 = $2.50 per DLH
Dept. B overhead rate: $2,000,000/120,000 = $16.67 per MHr (rounded)
35. 222233
7–31 Continued
2. Allocation order: General Factory, Maintenance, Power, Setups, A, and B
Allocation Ratios
Alloc. from: G.F. Maint. Power Setups Dept. A Dept. B
G.F. — 0.125 0.200 0.025 0.177 0.473
Maint. — — 0.150 0.050 0.100 0.700
Power — — — — 0.167 0.833
Setups — — — — 0.200 0.800
G.F. Maint. Power Setups Dept. A Dept. B
Direct $ 625,000 $ 500,000 $ 225,000 $ 150,000 $200,000 $ 800,000
G.F. (625,000) 78,125 125,000 15,625 110,625 295,625
Maint. — (578,125) 86,719 28,906 57,813 404,687
Power — — (436,719) — 72,932 363,787
Setups — — — (194,531) 38,906 155,625
Total $ 0 $ 0 $ 0 $ 0 $480,276 $2,019,724
Dept. A overhead rate: ($480,276/200,000) = $2.40 per DLH*
Dept. B overhead rate: ($2,019,724/120,000) = $16.83 per MHr*
*Rounded
Job SS Job TT
Prime cost $120,000 $ 50,000
Overhead:
($2.40 × 5,000) 12,000
($16.83 × 500) 8,415
($2.40 × 400) 960
($16.83 × 3,000) 50,490
$140,415 $101,450
Markup (50%) 70,208 50,725
Total bid revenue $210,623 $152,175
Units ÷ 14,400 ÷ 1,500
Bid price $ 14.63 $ 101.45
Although the difference is small, it appears to make the bids more attractive.
3. The use of the sequential method to allocate support-department costs to produc-
ing departments gives more accurate overhead rates.
4. If the best competing bid was $4.10 lower than the original bid, then it would be
$14.65. In this case, the sequential method of allocating overhead costs would
provide a bid ($14.63) that is just below the competing bid. Since the sequential
method is more accurate, the $14.63 bid is a good one.
36. 222244
MANAGERIAL DECISION CASES
7–32
1. Emma’s argument about the arbitrary nature of allocations has little merit. Even if
the allocation is arbitrary, changing it to exploit a customer is wrong. Many allo-
cations, however, are based on causal factors and reflect the consumption of re-
sources. If we accept cause and effect as a reasonable criterion for allocation,
then switching to a factor that is less related to overhead consumption certainly
will increase the inaccuracy of the product cost. Emma should price the new or-
der using the most accurate cost information available. Thus, the current alloca-
tion scheme should be maintained.
2. The controller (Lenny) should refuse to change the allocation method and make
every attempt to tactfully convince Emma of the impropriety of the recommended
action. Often, a simple comment questioning the propriety of an action is suffi-
cient to dissuade. According to the IMA Statement of Ethical Professional Prac-
tice, accountants should “refrain from engaging in any conduct that would preju-
dice carrying out duties ethically.” (III-2) The accountant should also abstain from
engaging in or supporting any activity that might discredit the profession. (III-3)
By changing allocation procedures, the controller would obtain personal gain (a
bonus) from unethical means. Furthermore, Lenny has an obligation to communi-
cate information fairly and objectively (IV-1). Choosing an allocation method that
is known to be less accurate is not consistent with this requirement.
3. Lenny should pursue all levels of internal review until a satisfactory resolution is
achieved. Then, after exhausting all levels of internal review, Lenny should sub-
mit his resignation.
4. Reacting with anger and contacting the customer was not an appropriate action
(as defined by the code for management accountants). According to the code,
“Except where legally prescribed, communication of such problems to authorities
or individuals not employed or engaged by the organization is not considered ap-
propriate.”
38. 222266
7–33 Continued
500D 206B 206L-1
Direct costs—fixed* $ 77.70* $ 58.88* $195.41*
Direct costs—variable** 25.54* 23.96* 110.28*
Overhead—fixed 41.76 40.51 43.42
Overhead—variable 66.67 66.67 66.67
Cost per unit $211.67 $190.02 $415.78
Markup* (15%) 31.75 28.50 62.37
Bid price $243.42 $218.52 $478.15
Less cost 211.67 190.02 415.78
Profit/hour $ 31.75 $ 28.50 $ 62.37
*Total direct fixed costs/Flying hours
**Total direct variable costs/Flying hours
Original expected profit (uses the original hours and the above bid prices and unit
variable costs):
Revenues:
1,200 × $243.42 = $292,104
,600 × $218.52 = 349,632
900 × $478.15 = 430,335 $ 1,072,071
Less variable costs 414,903
Contribution margin $ 657,168
Less direct fixed expenses (363,315)
Less indirect fixed expenses (154,000)
Income before taxes $ 139,853
Note: The answer can also be obtained by multiplying the profit per hour for each
helicopter by the original hours and summing. (Any slight difference is due to
rounding error.)
*Rounded
39. 222277
7–33 Continued
2. The actual revenues earned (for the first six months) were as follows:
299 × $243.42 = $ 72,783
160 × $218.52 = 34,963
204 × $478.15 = 97,543
$205,289
Actual costs incurred:
500D 206B 206L-1 Total
Direct costs—fixed* $46,623 $47,100 $87,935 $181,658
Direct costs—variable** 7,636 3,834 22,497 33,967
Overhead—variable*** 19,934 10,667 13,601 44,202
Indirect fixed costs* 77,000
Total $336,827
*Half of total annual costs
**Per-unit variable costs × Actual flying hours
***Per-unit variable cost ($66.67) × Actual flying hours
Income statement:
Revenue $ 205,289
Variable costs 78,169
Contribution margin $ 127,120
Fixed costs 258,658
Loss $(131,538)
Profit that should have been earned (for the first six months):
500D 206B 206L-1
Profit per hour $ 31.75 $ 28.50 $ 62.37
50% of projected hours × 600 × 800 × 450
$19,050 $22,800 $28,067
Total profit: $69,917 ($19,050 + $22,800 + $28,067)