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In: Accounting

Model, Inc., produces model automobiles made from metal. It operates two production departments, Molding and Painting,...

Model, Inc., produces model automobiles made from metal. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting, and Maintenance. The accumulated costs in the three service departments were $255,000, $405,000, and $217,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under $3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs.

The company decided that Administration costs should be allocated on the basis of square footage used by each production and service department. Accounting costs are allocated on the basis of number of employees. Maintenance costs are allocated on the basis of the dollar value of the equipment in each department. The use of each base by all departments during the current period follows:  
  

Used by
Allocation Base Administration Accounting Maintenance Molding Painting
Building area 8,000 28,000 36,000 288,000 48,000
Employees 48 17 24 96 72
Equipment value (in thousands) $ 29.00 $ 174.00 $ 14.50 $ 232.00 $ 145.00

      
Direct costs of the Molding Department included $235,000 in direct materials, $332,500 in direct labor, and $115,000 in overhead. The Painting Department’s direct costs consisted of $247,000 in direct materials, $183,000 in direct labor, and $67,500 in overhead.

  
Required:

a. Using the step method, determine the allocated costs and the total costs in each of the two producing departments. Ignore self-usage (for example, ignore work done by Administration for itself). Rank order the allocation as follows: (1) Maintenance, (2) Accounting, and (3) Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

b. Assume that 100,000 units were processed through these two departments. What is the unit cost for the sum of direct materials, direct labor, and overhead (1) for Molding, (2) for Painting, and (3) in total? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Assume that 100,000 units were processed through these two departments. What is the unit cost for the sum of direct materials, direct labor, and overhead (1) for Molding, (2) for Painting, and (3) in total? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Solutions

Expert Solution

Used by
Allocation Base Administration Accounting Maintenance Molding Painting Total
Building area $8,000.00 $28,000.00 $36,000.00 $288,000.00 $48,000.00 $400,000.00 ignore Administration
Employees $48.00 $17.00 $24.00 $96.00 $72.00 $240.00 Ignore Accounting
Equipment value (in thousands) $29.00 $174.00 $14.50 $232.00 $145.00 $580.00 Ignore Maintainence
a)
Alllocation Base Administration Accounting maintainence Molding Painting
Building Area = Building area /400,000 Self usage 0.07 0.09 0.72 0.12
Employees = Employees/240 $0.20 self usage $0.10 $0.40 $0.30
Equipment Value in thousands = Equipment/580 $0.05 $0.3 Self usage $0.4 $0.25
Alllocation Base maintainence Accounting Administation Molding Painting
Direct Costs $217,000 $405,000 $255,000 $682,500 $497,500
Maintainence (a) -$217,000 $65,100 $10,850 $86,800 $54,250
Accounting (b) -$470,100 $104,467 $208,933.33 $156,700
Administration (c) -$370,316.67 $317,414 $52,902
Total $0 $0 $0 $1,295,648 $761,352
Maintenance ( a)
Accounting ($217000/(.05+0.3+0.4+0.25))x .30 $65,100
Admin= ($217000/(.05+0.3+0.4+0.25))x .05 $10,850
Moulding ($217000/(.05+0.3+0.4+0.25))x .4 $86,800
Painting = ($217000/(.05+0.3+0.4+0.25))x .25 $54,250
Accounting (b) -(405,000+65100) = -$470,100
Admin = ($470,100/(.20+.40+.30)*.20 $104,467
Moulding = ($470,100/(.20+.40+.30)*.40 $208,933
Painting = ($470,100/(.20+.40+.30)*.30
 $156,700
Admini (c) =-($255,000+10850+104467) -$370,316.67
Moulding= $370,316.67/(.72+.12)*.72
 $317,414
Painting = $370,316.67/(.72+.12)*.12 $52,902
b)
Moulding Painting
Direct Material $235,000 $247,000
Direct labour $332,500 $183,000
Overhead( direct) $115,000 $67,500
overhead( allocated)(difference) $613,148 $263,852
Total $1,295,648 $761,352
unit cost
Moulding = $1,295,648/100,000 $12.96
Painting = $761,352/100,000 $7.61
Total $20.57
c)
Overhead allocated Cost
Moulding = $613148/100,000 $6.13
Painting = $263852/100,000 $2.64
Total $8.77
Moulding Department and painting department did not meet management’s standards of keeping service department costs below $2.50 per unit .

ekkarill92 answered 1 year ago
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