Atkinson, Solutions Manual t/a Management Accounting, 6E
– 112 –
4-37
Service Departments
Production Departments
S1
S2
P1
P2
Overhead costs
$65,000
$55,000
$160,000
$240,000
Allocation of S1 costs
(65,000)
15,000
20,000
30,000
Allocation of S2 costs
—
(70,000)
33,600
36,400
Total allocated
overhead costs
$0
$0
$213,600
$306,400
4-38
(a)
P1
P2
S1 $300: , $150,000 30
30 30 000
$300,$150,000 30
30 30 000
S2 : $300,$100,000 25
25 50 000
$300,$200,000 50
25 50 000
$250,000
$350,000
(b)
S1
S2
P1
P2
Directly
identified
costs
$300,000
$300,000
Allocation of
S1 costs
($300,000)
120,000
$90,000
$90,000
Allocation of
S2 costs
(420,000)
140,000
280,000
Totals
$0
$0
$230,000
$370,000
(c)
SS21000 025 $300, .
S2 S $300, .000 0 4 1
Chapter 4: Accumulating and Assigning Costs to Products
Therefore,
S1 S1
S
S1
S1
S2
$300, . $300, .
$375, .
. $375,
$375,
.$416,
$300, . $416, $466,
000 0 25 000 0 4
000 01 1
0 9 000
000
0 9 667
000 0 4 667 667
Allocation of S1 and S2 costs to P1 and P2
P1
P2
S1:
$416,667 30%
$125,000
$416,667 30%
$125,000
S2:
$466,667 25%
$116,667
$466,667 50%
$233,333
$241,667
$358,333
$116,667 to S1 and 0.4 × S1= $166,667 to S2.
S1
S2
P1
P2
Directly identified
costs
$300,000
$300,000
Allocation of S1 costs
(416,667)
166,667
$125,000
$125,000
Allocation of S2 costs
116,667
(466,667)
116,667
233,333
Total
$0
$0
$241,667
$358,333
– 114 –
PROBLEMS
4-39 (a) Plantwide cost driver rate = $15,000,000/100,000 machine hours
(b) Actual overhead − applied overhead
= $14,200,000 − $13,500,000 = $700,000
(c) Work in process, finished goods, and cost of goods sold will be
(d) Actual overhead − estimated overhead
Estimated overhead − applied overhead
overhead cost results from idle capacity. Recall that the machine hour
practical capacity was 100,000 while the actual machine hours used
totaled 90,000. This means that idle capacity was 10,000 (100,000 –
90,000) machine hours with an associated idle capacity cost of
$1,500,000 (10,000 × $150). Management will likely seek
– 115 –
revise the overhead budget or explore new product opportunities to
use the idle capacity.
4-40 (a) Cost driver rate:
Salaries of mechanics
$120,000
Fringe benefits
54,000
General and administrative
18,000
Depreciation
42,000
Total conversion costs
$234,000
Billable hours
4,500
Conversion cost per billable hour
$52.00
Markup
1.25
Cost driver rate
$65.00 per DL hr
(b) Job 254:
Job 254
Materials
$47.40
Conversion cost plus markup: 0.7 DL hours $65
45.50
Total price
$92.90
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 116 –
4-41
Job 101
Job 102
Job 103
Beginning Work in Process
$25,500
$32,400
$0
Department 1
Driver
Driver
Driver
Direct materials
$40,000
$26,000
$58,000
Direct labora
500 DL hrs
6,000
400 DL hrs
4,800
300 DL hrs
3,600
Manufacturing
overheadb
$40,000 DM
60,000
$26,000 DM
39,000
$58,000 DM
87,000
Department 2
Driver
Driver
Driver
Direct materials
$3,000
$5,000
$14,000
Direct labora
200 DL hrs
3,600
250 DL hrs
4,500
350 DL hrs
6,300
Manufacturing
overheadb
1200 mh
9,600
1500 mh
12,000
2700 mh
21,600
Department 3
Driver
Driver
Driver
Direct materials
$0
$0
$0
Direct labora
1500 DL hrs
22,500
1800 DL hrs
27,000
2500 DL hrs
37,500
Manufacturing
overheadb
$22,500 DL
45,000
$27,000 DL
54,000
$37,500 DL
75,000
Total Costs
$215,200
$204,700
$303,000
a Direct labor rates:
Department 1: $12 per DL hr
b Cost driver rates:
Department 1: 150% of DM cost
(a) Total cost of completed Job 101 $215,200
Chapter 4: Accumulating and Assigning Costs to Products
– 117 –
Week
Boston
Cambridge
1
$4,800
$2,400
2
4,500
*
2,700
3
5,118
2,482
4
5,200
**
2,600
5
5,100
2,100
*
1500
2400 7200 500
,
,,$4,
**
1700
2550 7800 200
,
,,$5,
committed resources.
Week
Boston
Cambridge
Unallocated
1
$4,800
*
$2,400
–
2
4,500
2,700
–
3
4,950
2,400
$250
4
5,100
2,550
150
5
5,100
2,100
–
the costs to be incurred.
Atkinson, Solutions Manual t/a Management Accounting, 6E
Week
Boston
Cambridge
1
$4,800
$2,400
2
4,800
2,400
3
5,200
*
2,400
4
5,200
**
2,600
5
4,800
2,400
Job Cost Sheet: Job #714
Milling
Total direct material cost
Direct labor
Assembly
Total direct labor cost
50 Direct labor hours $14 per hour
Total cost
$2,250
Chapter 4: Accumulating and Assigning Costs to Products
(b)
Cost driver rate Milling machine hours
per machine hour
$120,
$10
000
12,000
Cost driver rate Assembly direct labor hours
per direct labor hour
$160,
$13.
000
12,000
33
Job Cost Sheet: Job #714
Direct materials
Milling
$800
Assembly
50
Total direct material cost
$850.00
Direct labor
Milling
$100
Assembly
600
Total direct labor cost
700.00
Overhead
Milling: 18 machine hours $10 per hour
$180.00
Assembly: 40 direct labor hours $13.33 per hour
533.20
Total overhead cost
713.20
Total cost
$2,263.20
(c)
Part (a)
Part (b)
Manufacturing cost
$2,250.00
$2,263.20
25% markup
562.50
565.80
Bid price
$2,812.50
$2,829.00
Given this result, one might be inclined to use the simpler method in
part (a) rather than the more accurate but more complex method in
part (b). However, comparisons across different products may
produce greater differences in computed costs and bid prices.
– 120 –
4-44 (a)
Cutting
Grinding
Drilling
Total
Overhead
cost
$504,000
$2,304,000
$2,736,000
$5,544,000
Direct
labor hours
60,000
96,000
144,000
300,000
Plantwide cost driver rate:
$5,
,$18.
544,000
300 000 direct 48 per dir
labor hours ect labor hour
Overhead cost applied to Job ST101:
$18.48 × (2,000 + 2,500 + 3,000) = $138,600.
(b) Cost driver rate: Cutting
$504,
,$0.
000
960 000 525per machine hour
Cost driver rate: Grinding
$2,
,$24
304,000
96 000 direct labor hours per direct labor hour
Cost driver rate: Drilling
$2, ,$19
736 000
144,000 direct labor hours per direct labor hour
Overhead cost applied to Job ST101:
Dept
Rate
Units of Driver Used
Overhead Cost
Cutting
$0.525
20,000 MH
$10,500
Grinding
$24.00
2,500 DLH
60,000
Drilling
$19.00
3,000 DLH
57,000
$127,500
Chapter 4: Accumulating and Assigning Costs to Products
– 121 –
potentially more accurate.
4-45 (a) Cost driver rate for machining:
$500,
,$25
000
20 000 machine hours per machine hour
Cost driver rate for finishing:
$400,
$500,.
000
000 80%of direct labor cost
(b)
Machining
Department
Finishing
Department
Total
Direct material cost
$12,000
$2,000
$14,000
Direct labor cost
300
1,200
1,500
Manufacturing
overhead
2,000a
960b
2,960
Total costs of Job 511
$14,300
$4,160
$18,460
a
2000 80,$25
b
$960 ,80% 1200of