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Lecture

# February 04 2014 bu247.docx

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Department
Course Code
BU247
Professor
Esther Maier

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February 04 2014 bu247 3-29 Mackenzie Consulting computes the cost of each consulting engagement by adding a portion of firm wide overhead costs to the labour cost of the consultants on the engagement. The overhead costs are assigned to each consulting engagement using a cost driver rate based on consultant labour costs. Mackenzie consulting overhead costs are \$5 million per year and total consultant labour cost is estimated at \$2.5 million per year. a) What is Mackenzie consulting cost driver rate? Total overheads: \$5 000 000/ Labour cost \$ 2 500 000 = 2 x direct labour cost b) If the consultant labour cost on an engagement is \$25 000 what cost will Mackenzie consulting compute as the total cost of the consulting engagement? Direct labour + overhead (2x direct labour cost) = \$25 000 + 2 x \$25 000 = \$75 000 3-30 The Brinker company uses a job order costing system at its local plant. The plant has a machining department and a finishing department. The company uses machine hours to allocate machining department overhead costs to jobs and uses direct labour cost to allocate finishing department costs to jobs. Cost and practical capacity estimates for the current year are as follows: Machining Department Finishing Department Manufacturing overhead \$350 000 \$280 000 Machine hours 14 000 1400 Direct labour hours 3500 15400 Direct labour costs \$105 000 \$350 000 Cost driver rate \$350 000/14 000=\$25/ MH \$280 000/ 350 000= 80% of DL cost Required a) Determine the cost driver rate for each department b) Cost records for job 101 show the following: Machining Department Finishing Department Total Direct material costs \$8000 \$1400 \$9400 Direct labour costs \$250 \$800 1050 Direct labour hours 7 35 Machine hours 50 60 Overhead allocation \$25 x 50 = \$1250 80% x \$800 = \$640 1890 \$9500 \$2840 \$12340 Determine the total cost charged to job 101. *long distance calls, photo copies, supplies for presentation = costs 4-41 Production departments Direct labour rates Cost driver rates Department 1 \$12 150% of direct material costs Department 2 18 \$8 per machine hour Department 3 15 200% of direct labour cost Job 101 Job 102 Job 103 Beg. WIP \$25 500 \$32 400 \$0 Direct materials Department 1 \$40 000 \$26 000 \$58 000 Department 2 3000 5000 14 000 Department 3 0 0 0 Direct labour hours: Department 1 \$12 500 \$6000 400 \$4800 300 \$3600 Department 2 \$8 200 3600 250 4500 350 6300 Department 3 \$15 1500 22 500 1800 27000 2500 37500 Machine hours: Department 1 0 0 0 Department 2 1200 1500 2700 Department 3 150 300 200 Overhead allocation Dept 1 – 1.5 x DM \$60 000 \$39 000 \$87 000 Dept 2 - \$8 per MH 96000 12 000 21 600 Dept 3 – 2 x DL cost 45 000 54 000 75 000 Completed cost \$215 200 \$204
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