Question

In: Accounting

Welshpool Engineering has two production departments and two support departments. Budgeted data for the year follow. The company does not separate fixed and variable costs.

 

Welshpool Engineering has two production departments and two support departments. Budgeted data for the year follow. The company does not separate fixed and variable costs.

 

Support Departments

Production Departments
 

Maintenance

Power

Drilling

Assembly

Overhead costs

$160,000

$200,000

$81,500

$45,000

Machine hours

-

11,250

15,000

3,750

Kilowatt-hours

20,000

5,000

18,000

162,000

The maintenance department costs are allocated based on machine hours and power department costs are allocated based on kilowatt hours.

Required:

  1. Determine the total overhead costs for each of the production department, after allocation of support department costs, using each of the following allocation methods:
  1. Direct method:

  2. Ratio

    Maintenance

    Power

    Drilling

    Assembly
             
             

    Allocation of costs:

    Overhead costs

    $160,000

    $200,000

    $81,500

    $45,000
             
             
             
             
             

    b.    Step down(sequential) method. (Show your working to determine the ranking of the support   departments)                                                                                                                            

     

    Ratio

    Maintenance

    Power

    Drilling

    Assembly
             
             

    Ranking of Support department:

    Allocation of costs:

    Overhead costs

    $160,000

    $200,000

    $81,500

    $45,000
             
             
             
             
             

     

  3. Reciprocal method

  4.  

     

    Ratio

    Maintenance

    Power

    Drilling

    Assembly
             
             

    Allocation of costs:

    Overhead costs

    $160,000

    $200,000

    $81,500

    $45,000
             
             
             
             
             

     

    2.      Which method would the production manager of the Assembly Department prefer and why? Which method most accurately allocates support department costs and why?  

                                                                                                                         

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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