Question

Kay and Dee Manufacturing (K+D) has three business lines:

• Repair and Overhead (R+O): Repair of truck transmissions.
• Manufacturing: manufacturing of custom truck transmission parts
• Chemical Treating: cleaning of old parts

They also have three support departments. Major activities of each department are:

• Human Resources (HR): Payroll, HR staff, employee services, Union/Management relations. Costs for this service department are allocated based on Headcount.
• Facility: buildings, building maintenance and related building costs. Costs for this service department are allocated based on area occupied.
• Main Office (HQ): salaries for the President, VP, and Finance department. Costs for this service department are allocated based on Direct Labour hours.

Other financial information is in Appendix A.

REQUIRED:

a) Briefly comment on the cost drivers for the support departments. (ie. Do you think they are appropriate, or can you recommend something better?)

b) Using the Direct Method, allocate overhead costs from the support departments to the business lines.

c) Using the Step-down method, allocate overhead costs from the support departments to the business lines.

1^st Building

2^nd HR

3^rd HQ

d) Using the Reciprocal Method, allocate overhead costs from the support departments to the business lines.

Additional Information:
	HQ	HR	Building	Repair + Overhaul	Manufacturing	Chemical Treating
Direct Labour (hours)	0	0	0	225,000	237,422	0
Processing Time (hours)	0	0	0	0	0	1,820
Headcount (employees)	8	7	15	180	350	3
Floorspace (square feet)	3,005	2,200	19,600	540,000	360,000	28,483
Overhead Costs (in $)	4,901,398	777,199	9,198,554	16,179,253	33,923,386	845,325

Answer 1

1) I think HR and building cost drivers, to allocate service department cost are correct. There is no need to change for the same. But in case of HQ instaed of direct labour company can used Corporate time spend for that business line.

2)

Direct method to allocate the budgeted costs
Departments	HQ Cost Allocation %	HR Cost Allocation %	Building Cost Allocation %	HQ Cost Allocation (Amount $)	HR Cost Allocation (Amount $)	Building Cost Allocation (Amount $)	Total Cost of Deparment (Amount$)
	A	B	C	D= 4901398* A/total of A	E= 777199* B/563	F= 9198554* C/953288	D+E+F
Repair and Overhaul	225,000	180	540,000	2,384,866	248,483	5,210,618	7,843,966
Manufacturing	237,422	350	360,000	2,516,532	483,161	3,473,745	6,473,438
Chemical treating	-	3	28,483	-	4,141	274,841	278,982
Total	462,422	533	928,483	4,901,398	735,785	8,959,203	14,596,387

3)

Step-Down method to allocate the budgeted costs						Amount $
		Repair and Overhaul	Manufacturing	Chemical treating	HQ Dept	HR Dept	Building Dept	TOTAL
Cost of Department	A	16,179,253	33,923,386	845,325	4,901,398	777,199	9,198,554	-
Building Dept
Allocation Base	B	540,000	360,000	28,483	3,005	2,200	-	933,688
Cost allocation ($9198554*B/933688)	C	5,319,999	3,546,666	280,610	29,605	21,674	(9,198,554)	-
Total	D=A+C	21,499,252	37,470,052	1,125,935	4,931,003	798,873	-	-
HR Dept
Allocation Base	E	180	350	3	8	-	-	541
Cost allocation ($798873*E/541)	F	265,799	516,831	4,430	11,813	(798,873)	-	-
Total	G=D+F	21,765,051	37,986,883	1,130,365	4,942,816	-		-
HQ Dept
Allocation Base	H	225,000	237,422	-	-	-	-	462,422
Cost allocation ($4942816*H/462422)	I	2,405,019	2,537,797	-	(4,942,816)	-	-	-
Total	G+I	24,170,070	40,524,680	1,130,365	-	-		-

4)

Step-Down method to allocate the budgeted costs						Amount $
		Repair and Overhaul	Manufacturing	Chemical treating	HQ Dept	HR Dept	Building Dept	TOTAL
Cost of Department	A	16,179,253	33,923,386	845,325	4,901,398	777,199	9,198,554	-
HQ Dept
Allocation Base	B	225,000	237,422	-	-	-	-	462,422
Cost allocation ($4901398*B/462422)	C	2,384,866	2,516,532	ekkarill92 Next > < Previous Related Solutions Assuming you are new engineer working in R & D division at manufacturing company which has... Assuming you are new engineer working in R & D division at manufacturing company which has decided to evaluate CAD/CAM system to adopt in your company in order to meet Industrial 4.0. Make an outline to decided which suitable CAD/CAM system can be selected to adapt with Industrial 4.0. ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions In 1941, President Roosevelt spoke about the “four freedoms.” For many in the country, however, these... Your friend is looking for investors in a risky business venture. To convince you to participate,... Suppose you observe the following situation: State of Economy Probability of State Return if State Occurs... Merger Analysis TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia... Journal Entries and Trial Balance Elite Realty acts as an agent in buying, selling, renting, and... In racket Assume that the elements of a list are indexed starting with 1. Write a... Describe System Development Life Cycle (SDLC) and how it is used. ADVERTISEMENT About @ 2020 WizEdu