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Chapter 12 - Cost Accumulation, Tracing, and Allocation
12-1
Demonstration Problem 12-1 Solution b. continued
$84,000
⎯⎯⎯⎯⎯
=
$0.12 per direct cost dollar
$700,000
Step 2. Determine the amount to be allocated by multiplying the
allocation rate by the weight of the base.
House
Allocation
Rate
x
Weight of Base
=
Allocated Cost
1
$0.12
x
$350,000
=
$42,000
2
$0.12
x
$200,000
=
$24,000
3
$0.12
x
$150,000
=
$18,000
Total
$84,000
This method benefits buyers of lower cost houses. It assigns a
c. The most rational allocation scheme uses different bases for
allocating indirect materials costs and fringe benefit costs. The
amount of indirect materials used is probably closely related to
Allocation of Indirect Materials Cost
Step 1. Determine the allocation rate:
Cost to be Allocated
⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
=
Allocation Rate
Allocation Base
Chapter 12 - Cost Accumulation, Tracing, and Allocation
$63,000
⎯⎯⎯⎯⎯
=
$0.21 per direct material cost dollar
$300,000
Step 2. Determine the amount to be allocated by multiplying the
allocation rate by the weight of the base.
House
Allocation
Rate
x
Weight of Base
=
Allocated Cost
1
$0.21
x
$140,000
=
$29,400
2
$0.21
x
$ 70,000
=
$14,700
3
$0.21
x
$ 90,000
=
$18,900
Total
$63,000
Allocation of Fringe Benefits Cost
Step 1. Determine the allocation rate:
Cost to be Allocated
⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
=
Allocation Rate
Allocation Base
Chapter 12 - Cost Accumulation, Tracing, and Allocation
12-3
Total Overhead Allocated to Each House:
House 1
House 2
House 3
Total
Indirect Materials
$29,400
$14,700
$18,900
$63,000
Fringe Benefits
$11,025
$ 6,825
$ 3,150
$21,000
Total Indirect Costs
$40,425
$21,525
$22,050
$84,000
Note: the total cost of each house using the allocation scheme in
part c is:
House 1
House 2
House 3
Direct Materials
$140,000
$ 70,000
$ 90,000
Direct Labor
210,000
130,000
60,000
Overhead
40,425
21,525
22,050
Total Cost
$390,425
$221,525
$172,050
Demonstration Problem 12-1 Work Papers
a. ___________ ÷ __ = ____________ overhead cost per house.
Chapter 12 - Cost Accumulation, Tracing, and Allocation
12-4
b. Total direct costs are as follows:
House 1
House 2
House 3
Total
Direct Materials
$140,000
$ 70,000
$90,000
$300,000
Direct Labor
210,000
130,000
60,000
400,000
Total Direct Cost
Step 1. Determine the allocation rate:
Cost to be Allocated
⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
=
Allocation Rate
Allocation Base
Demonstration Problem 12-1 Work Papers b. continued
⎯⎯⎯⎯⎯
=
________ per direct cost dollar
Step 2. Determine the amount to be allocated by multiplying the
allocation rate by the weight of the base.
House
Allocation
Rate
x
Weight of Base
=
Allocated Cost
1
x
=
2
x
=
3
x
=
Total
12-5
c.
Allocation of Indirect Materials Cost
Step 1. Determine the allocation rate:
Cost to be Allocated
⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
=
Allocation Rate
Allocation Base
Demonstration Problem 12-1 Work Papers c. continued
⎯⎯⎯⎯⎯
=
______ per direct material cost dollar
Step 2. Determine the amount to be allocated by multiplying the
allocation rate by the weight of the base.
House
Allocation
Rate
x
Weight of Base
=
Allocated Cost
1
x
=
2
x
=
3
x
=
Total
Allocation of Fringe Benefits Cost
Step 1. Determine the allocation rate:
Cost to be Allocated
Chapter 12 - Cost Accumulation, Tracing, and Allocation
12-6
⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
=
Allocation Rate
Allocation Base
⎯⎯⎯⎯⎯
=
_______ per direct labor cost dollar
Demonstration Problem 12-1 Work Papers c. continued
Step 2. Determine the amount to be allocated by multiplying the
allocation rate by the weight of the base.
House
Allocation
Rate
x
Weight of Base
=
Allocated Cost
1
x
=
2
x
=
3
x
=
Total
Total Overhead Allocated to Each House:
House 1
House 2
House 3
Total
Indirect Materials
Fringe Benefits
Total Indirect Costs
$40,425
$21,525
$22,050
$84,000
Note: The total cost of each house using the allocation scheme in
part c is:
House 1
House 2
House 3
Direct Materials
Direct Labor
Overhead
Total Cost
$390,425
$221,525
$172,050
