ACCO 330 Final: InClass-Illustration-Alloc-Data.docx
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2) Broadway Department Store allocates the personnel and payroll department costs to the sales departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide services to each other. Personnel costs are allocated by number of employees and payroll costs are allocated by gross payroll. Costs and other information for January were as follows:
Personnel | Payroll | Shoes | Automotive | Clothing | |||||
Current Costs | $ 13,800 | $ 6,400 | $ 24,400 | $ 40,000 | $ 31,500 | ||||
Gross Payroll | $ 3,000 | $ 1,500 | $ 5,600 | $ 8,700 | $ 4,050 | ||||
Number of Employees | 5 | 3 | 8 | 15 | 4 | ||||
Required:
Prepare a schedule that includes the total cost of operating the sales departments for January. Allocate service costs using the step-down method with the sequence of allocation based on highest percentage support concept.
The Sendai Co., Ltd., of Japan has budgeted costs in its variousdepartments as follows for the coming year: |
FactoryAdministration | $ | 994,245 |
CustodialServices | 202,335 | |
Personnel | 28,650 | |
Maintenance | 122,120 | |
Machiningâoverhead | 921,900 | |
Assemblyâoverhead | 277,525 | |
Total cost | $ | 2,546,775 |
The companyallocates service department costs to other departments in theorder listed below. |
Department | Numberof Employees | Total Labor- Hours | Square Feet of Space Occupied | Direct Labor- Hours | Machine- Hours |
FactoryAdministration | 22 | â | 10,800 | â | â |
CustodialServices | 15 | 7,000 | 7,200 | â | â |
Personnel | 12 | 15,000 | 3,300 | â | â |
Maintenance | 51 | 47,900 | 19,800 | â | â |
Machining | 30 | 80,000 | 100,000 | 56,000 | 183,750 |
Assembly | 120 | 240,000 | 40,000 | 216,000 | 61,250 |
250 | 389,900 | 181,100 | 272,000 | 245,000 | |
Machining and Assembly are operating departments; the otherdepartments are service departments. Factory Administration isallocated on the basis of labor-hours; Custodial Services on thebasis of square feet occupied; Personnel on the basis of number ofemployees; and Maintenance on the basis of machine-hours. |
Required: |
1. | Allocate service department costs to consuming departments bythe step-down method. Then compute predetermined overhead rates inthe operating departments using a machine-hours basis in Machiningand a direct labor-hours basis in Assembly. (Please enterallocations from a department as negative and allocations to adepartment as positive. The line should add across to zero. Do notround intermediate calculations. Round "Predetermined overheadrates" to 2 decimal places and other answers to the nearest wholedollar amount.) |
2. | Allocate service department costs to consuming departments bythe direct method. Again, compute predetermined overhead rates inMachining and Assembly. (Please enter allocations from adepartment as negative and allocations to a department as positive.The line should add across to zero. Do not round intermediatecalculations. Round "Predetermined overhead rates" to 2 decimalplaces and other answers to the nearest whole dollaramount.) |
3. | Assume that the company doesnât bother with allocating servicedepartment costs but simply computes a single plantwide overheadrate based on total overhead costs (both service department andoperating department costs) divided by total direct labor-hours.Compute the plantwide overhead rate. (Round your answer to2 decimal places.) |
4. | Suppose a job requires machineand labor time as follows: |
Machine-Hours | Direct Labor-Hours | |
MachiningDepartment | 270 | 26 |
AssemblyDepartment | 11 | 77 |
Total hours | 281 | 103 |
Compute the amount of overhead cost that would be assigned tothe job if the overhead rates were developed using the stepdownmethod, the direct method, and the plantwide method. (Roundintermediate calculations to 2 decimal places and finalcalculations to the nearest whole dollar.) |
Gordon County Hospital (GCH) is a rural hospital. The financial statements for GCH are provided in Exhibit 1. The new CEO of the hospital is concerned that GCH does not have appropriate costing for management purposes. Accordingly she has discussed with the hospitalâs controller the current costing methodology.
The controller has explained that the revenue centers are considered profit centers so that all direct costs of each revenue center are subtracted from revenues generated in primary patient care, labs and imaging. All of the support department costs are considered overhead and not currently allocated to any of the profit centers.
The controller who began in the financial services area as an Accounts Receivable clerk and worked her way up the chain of command to controller indicates that the hospital is operating at a profit of about $12 million. Furthermore she states that each of the profit centers are profitable. the primary patient care profit center has a $20 million profit followed closely by labs as can be seen through Exhibit 1.
The CEO has asked the controller to allocate the overhead, or support service department cost, to each of the profit centers. Accordingly controller returns to her office and is contemplating how to allocate support Service department costs to each of the profit centers. She knows that you have recently completed an MBA and asked for your advice about how to allocate support service department costs.
You tell her that there are several methodologies that would be appropriate. You know that perhaps the simplest approach would be to use the direct method to allocate service department cost to each of the profit centers. She responds that she knows that the overhead cost allocation should follow some logical and systematic basis along the lines of what has caused the cost. She asked for your advice about what you believe would be the best method to allocate each service department cost.
You reflect on the nature of each service department one by one. You know that financial services essentially does all the billing and handling of insurance. Facilities you understand takes care of all of the maintenance of the hospital. Maintenance of equipment for specialized equipment is done by technicians who are specially contracted by each profit center and their costs are therefore considered direct to each profit center. The hospital employs housekeeping personnel that clean the hospital, wash laundry and so forth. Administration is responsible for overseeing the operations of the hospital. Personnel department is essentially a human resource department.
In your opinion, with this limited data, what are the cost drivers of each support department cost? Provide a rationale for each driver.
Exhibit 1 | |
Gordon County Hospital | |
Projected Revenues by Patient Services Department | |
Primary Patient Care | $ 40,000,000 |
Labs | $ 34,000,000 |
Imaging | $ 6,000,000 |
Total Revenues | $ 80,000,000 |
Projected direct Costs | |
Primary Patient Care | $ 20,000,000 |
Labs | $ 15,000,000 |
Imaging | $ 3,000,000 |
Total Costs | $ 38,000,000 |
Support Services Departments (Overhead Costs): | |
Financial Services | $ 1,500,000 |
Facilities | $ 3,800,000 |
Housekeeping | $ 1,600,000 |
Administration | $ 4,400,000 |
Personnel | $ 2,550,000 |
Total Costs | $ 13,850,000 |
Total costs of both patient and support services | $ 51,850,000 |
Projected profit | $ 28,150,000 |
Part A, 2
Next, make the allocation on the basis of the following data. Exhibit 3 shows data for square feet, housekeeping labor hours and salaries for each of the three production departments. First calculate an allocation rate (show your work), then allocate costs and calculate profit (including direct costs) for each of the production departments. Cost drivers and total cost pool for each support department is listed below:
Department | Cost Pool (Total Costs) | Cost Driver | Total Utilization |
Financial Services | $ 1,500,000 | Patient Revenue | $ 80,000,000 |
Facilities | $ 3,800,000 | Square Feet | $ 300,600 |
Housekeeping | $ 1,600,000 | Labor Hours | $ 91,000 |
Administration | $ 4,400,000 | Salary Dollars | $ 10,183,000 |
Personnel | $ 2,550,000 | Salary Dollars | $ 10,183,000 |
Prepare a schedule illustrating the allocation of support department costs to each of the production departments and calculate the total costs (allocated support department costs + direct costs) and the net income of each production department after all costs have been allocated.