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60 Managerial Accounting, 16th Edition
Exercise 4B-4 (20 minutes)
Service
Departments
Operating
Departments
Admini-
stration Janitorial
Mainte-
nance Binding Printing Total
Departmental costs before
allocations ………………………….. $140,000 $105,000 $ 48,000 $275,000 $430,000 $998,000
A
llocations:
A
dministration costs1:
T
1Allocation base: 315 employees + 210 employees = 525 employees
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Solutions Manual, Appendix 4B 61
Problem 4B-5 (45 minutes)
House-
keeping
Services
Food
Services
Admini-
strative
Services Laboratory Radiology
General
Hospital
Departmental costs before
A
llocations:
Housekeepin
g
Services costs
(13/145; 6.5/145; 10/145;
7.5/145; 108/145) ………………. (87,000) 7,800 3,900 6,000 4,500 64,800
Food Services costs
(800 ÷ 71,800; 2,000 ÷
71,800; 1,000 ÷ 71,800;
A
T
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62 Managerial Accounting, 16th Edition
Problem 4B-6 (60 minutes)
1. Step-down method
Factory
Admini-
stration
Custodial
Services Personnel
Mainte-
nance Machining Assembly
Departmental costs before
A
llocations:
Factory Administration costs
($270,000 ÷ 150,000 labor-
hours = $1.80 per labor-hour) (270,000) 5,400 9,000 39,600 54,000 162,000
T
Custodial Services costs
($74,160 ÷ 103,000 square
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Solutions Manual, Appendix 4B 63
Problem 4B-6 (continued)
2. Direct method
Factory
Admini-
stration
Custodial
Services Personnel
Mainte-
nance Machining Assembly
Departmental costs before
allocations ………………………. $270,000 $68,760 $28,840 $45,200 $376,300 $175,900
A
llocations:
Factory Administration costs
(30/120, 90/120) ……………. (270,000) 67,500 202,500
Custodial Services costs
T
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64 Managerial Accounting, 14th Edition
Problem 4B-6 (continued)
3.
Plantwide rate
Total overhead cost
100,000 DLHs
4. The amount of overhead cost assigned to the job would be:
Step-down method:
Machinin
g
Department: $8.30 per machine-hour ×
Direct method:
Machinin
g
Department: $7.834 per machine-hour ×
190 machine-hours …………………………………………. $1,488
Plantwide method:
$9.65 per direct labor-hour × 100 direct labor-hours …. $965
The plantwide method, which is based on direct labor-hours, assigns
very little overhead cost to the job because it requires little labor time.
Assuming that Factory Administrative costs really do vary in proportion
to labor-hours, Custodial Services with square feet occupied, and so on,
overhead rates of the three methods.
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Solutions Manual, Appendix 4B 65
Case 4B-7 (60 minutes)
1. Step-down method:
Personnel
Custodial
Services
Mainte-
nance Printing Binding
Departmental costs before allocations………….. $360,000 $141,000 $201,000 $525,000 $373,500
A
llocations:
Personnel costs (15/200, 25/200, 40/200,
T
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66 Managerial Accounting, 16th Edition
Case 4B-7 (continued)
2. Direct method:
Personnel
Custodial
Services
Mainte-
nance Printing Binding
Departmental costs before allocations………….. $360,000 $141,000 $201,000 $525,000 $373,500
A
llocations:
Personnel costs (40/160, 120/160)1………….. (360,000) 90,000 270,000
T
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Solutions Manual, Appendix 4B 67
Case 4B-7 (continued)
3. a. The amount of overhead cost assigned to the job would be:
Ste
p
–
down method
:
Printin
g
department:
Direct method
:
Printin
g
department:
Bindin
g
department:
b. The step-down method provides a better basis for computing
predetermined overhead rates than the direct method because it
gives recognition to services provided between service departments.
Inaccuracies in the predetermined overhead rate can cause
corresponding inaccuracies in bids for jobs. Because the direct
method in this case understates the overhead rate in the Printing
g