In: Accounting
Shared Service Department Problem Set
Yellow Springs Manufacturing produces machine parts on a job-order basis. Most business is obtained through bidding. Most firms competing with Yellow Springs bid full cost plus a 20 percent markup. Recently, with the expectation of gaining more sales, Yellow Springs reduced its markup from 25 percent to 20 percent. The company operates two service departments and two producing departments. The budgeted costs and the normal activity levels for each department are as follows:
Service Departments |
Producing Departments |
|||
A |
B |
C |
D |
|
Overhead costs |
$100,000 |
$200,000 |
$100,000 |
$50,000 |
Number of employees |
8 |
7 |
30 |
30 |
Maintenance hours |
2,000 |
200 |
6,400 |
1,600 |
Machine hours |
-- |
-- |
10,000 |
1,000 |
Labor hours |
-- |
-- |
1,000 |
10,000 |
The direct costs of Department A are allocated on the basis of employees; those of Department B are allocated on the basis of maintenance hours. Departmental overhead rates are used to assign costs to products. Department C uses machine hours, and Department D uses labor hours.
The firm is preparing to bid on a job (Job K) that requires three machine hours per unit produced in Department C and no time in Department D. The expected prime costs per unit are $67.
Required:
Joint Costs Problem Set
Pandemic Pharmaceutical Company purchases a material that is then processed to yield three chemicals: anarol, estyl, and betryl. In June, PPC purchased 10,000 gallons of the material at a cost of $250,000, and the company incurred joint conversion costs of $70,000. June sales and production information are as follows:
Gallons Produced |
Price at Split-Off |
Further Processing Cost per Gallon |
Eventual Sales Price |
|
Amarol |
2,000 |
$55 |
||
Estyl |
3,000 |
40 |
||
Betryl |
5,000 |
30 |
$5 |
$60 |
Amarol and estyl are sold to other pharmaceutical companies at the split-off point. Betryl can be sold at the split -off point or processed further and packaged for sale as an asthma medication.
Required:
Please Show work/ Explanations.
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Yellow Springs | |||||
Direct Method | Dept. A | Dept. B | Dept. C | Dept. D | Total |
Number of Employees | 30.00 | 30.00 | 60.00 | ||
Number of Employees % | 50.00% | 50.00% | 100.00% | ||
Maintenance Hours | 6,400.00 | 1,600.00 | 8,000.00 | ||
Maintenance Hours % | 80.00% | 20.00% | 100.00% | ||
Overhead costs | 100,000.00 | 200,000.00 | 100,000.00 | 50,000.00 | 450,000.00 |
Dept. A cost to be allocated- Number of Employees % | (100,000.00) | 50,000.00 | 50,000.00 | - | |
Dept. B cost to be allocated- Maintenance Hours % | (200,000.00) | 160,000.00 | 40,000.00 | - | |
Total cost after allocation | - | - | 310,000.00 | 140,000.00 | 450,000.00 |
Machine/ Labor Hours | 10,000.00 | 10,000.00 | |||
Predetermined overhead rate | 31.00 | 14.00 |
Bid for Job K | Amount $ |
Machine Hours in Dept. C | 3.00 |
Predetermined overhead rate | 31.00 |
Overhead per unit | 93.00 |
Prime costs | 67.00 |
Bid for Job K | 160.00 |
Step Method | Dept. A | Dept. B | Dept. C | Dept. D | Total |
Maintenance Hours | 2,000.00 | 6,400.00 | 1,600.00 | 10,000.00 | |
Maintenance Hours % | 20.00% | 0.00% | 64.00% | 16.00% | 100.00% |
Overhead costs | 100,000.00 | 200,000.00 | 100,000.00 | 50,000.00 | 450,000.00 |
Dept. B cost to be allocated- Maintenance Hours % | 40,000.00 | (200,000.00) | 128,000.00 | 32,000.00 | - |
Total cost after allocation | 140,000.00 | - | 228,000.00 | 82,000.00 | 450,000.00 |
Number of Employees | 30.00 | 30.00 | 60.00 | ||
Number of Employees % | 50.00% | 50.00% | 100.00% | ||
Dept. A cost to be allocated- Number of Employees % | (140,000.00) | - | 70,000.00 | 70,000.00 | - |
Total cost after allocation | - | - | 298,000.00 | 152,000.00 | 450,000.00 |
Machine/ Labor Hours | 10,000.00 | 10,000.00 | |||
Predetermined overhead rate | 29.80 | 15.20 |
Bid for Job K | Amount $ |
Machine Hours in Dept. C | 3.00 |
Predetermined overhead rate | 29.80 |
Overhead per unit | 89.40 |
Prime costs | 67.00 |
Bid for Job K | 156.40 |
Reciprocal Method | Dept. A | Dept. B | Dept. C | Dept. D | Total |
Number of Employees | 7.00 | 30.00 | 30.00 | 67.00 | |
Maintenance Hours | 2,000.00 | 6,400.00 | 1,600.00 | 10,000.00 | |
Number of Employees % | 0.0000% | 10.4478% | 44.77612% | 44.77612% | 100.00% |
Maintenance Hours % | 20.0000% | 0.0000% | 64.0000% | 16.0000% | 100.00% |
Overhead costs | 100,000.00 | 200,000.00 | 100,000.00 | 50,000.00 | 450,000.00 |
Let cost of Dept. A is $ X and Dept. B is $ Y |
So, X= 100000+ 20% of Y |
So, X= 100000+ 0.20Y |
Y= 200000+ 10.45% of X |
Y= 200000+ 0.1045X |
Substituting the value of X in equation 2: |
Y = 200000 + 0.1045(100000 + 0.2Y) |
Y = 200000 + 10448+.0209Y |
Y – 0.0209Y = 200000+10448 |
0.9791044 = 210,448 |
Y = 210,448/0.9791044 |
Y = $ 214,939 |
Substituting the value of Y in equation 1: |
So, X= 100000+ 0.2Y |
So, X= 100000+ 0.2*214939 |
So, X= 100000+ 42988 |
X= $ 142,988 |
Allocation Summary | Dept. A | Dept. B | Dept. C | Dept. D | Total |
Number of Employees % | 0.000000% | 10.447800% | 44.776120% |
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