PROBLEMS Problem 1
The Denmark Company estimates its factory overhead for the next period at 500, 000. It is estimated that 10, 000 units will e produced at a materials cost of !00, 000 and will re"uire re"uire #5, 000 direct laor hours at an estimated cost of #50, 000. The machines will run aout $0, 000 hours. %e"uired& The predetermined factory overhead rate ased on& 1. 'aterial cost #. (nits of production ). 'achine hours !. Direct laor cost 5. Direct laor hours Answer:
1. 500 000*!00 000 x 100 + 1#5 of direct materials cost #. 500 000*10 000 + 50*unit ). 500 000*$0 000 + -.#5*machine hours !. 500 000*#50 000 x 100 + # of direct laor cost 5. 500 000*#5 000+ #0*direct laor hours Problem 2
The 'arco Company udeted overhead at / #55, 000 for the period for Department , on the asis of a udeted volume of / 100, 000 direct laor hours. t the end of the period, the actory 2verhead Control account for Department had a alance of / #30, 0004 actual direct laor hours were / 105, 000 %e"uired& 1. Compute for the overhead application rate #. Compute for the applied factory overhead ). Compute for the over or underapplied underapplied overhead Answer:
1. actory 2verhead %ate + / #55, 000*100, 000 + / #.55*D67r. #. pplied actory 2verhead + 105,000 x / #.55 + / #-3, 350
). actory 2verhead Control 8actual9 6ess& pplied actory 2verhead (nderapplied 2verhead
/ #30,000 #-3,350 / #, # ,#50
Problem 3
'arvin Company:s estimated factory overhead for the year was / !5-, 1#0 and the actual overhead was / !30, $00. 'achine hours were used in determinin the factory overhead application rate. There were / $!, 500 actual machines and / $1, !50 estimated machine hours durin the year. year. %e"uired& . /repare ;ournal entries to record the followin 1. The applied factory overhead #. The actual factory overhead ). The closin of the applied overhead account and actual factory account. <. ssume the followin amounts of applied factory overhead in each account. Cost of oods sold )50 000 inished oods inventoryend 100 000 =ork in process inventoryend #) #00 llo lloca cate te the the over over or unde underrapp appli lied ed fact factor ory y over overhe head ad to thes these e three three accounts. Answer: A. 1. 1. =ork in /rocess
!3),#00
actory 2verhead pplied >$!, 000 x 5.-0 + !3), #00
!3),#00>
#. 2 Control 'iscellaneous ccounts
!30,$00
). actory 2verhead pplied Cost of ?oods @old actory 2verhead Control
!3),#00
!30,$00
B. Cost of oods sold )50,000*!3),#00
#,!00 !30,$00 x
#,!00+
1,335
inis nished hed oods 503
100,000*!3),#0 ,#00
x
#,!00
+
=ork =o rk in process 11$
#),#00*!3),#00
x
#,!00
+
Problem 4
The Allery Corporation uses the ;o order cost system of accountin. @hown elow is a list of the ;os completed durin the month of 'arch showin the chares for materials re"uisitioned and for direct laor cost. Bo 'aterial Cost Direct 6aor 1#) )00 -00 1#! 1 0$0 !0 1#5 3#0 1 !00 1#! #00 5 1#0 %e"uired& ssumin that factory overhead is applied on the asis of direct laor costs and that the predetermined rate is 1$0 compute& 1. The amount of overhead to e added to the cost of each ;o completed #. The total cost of each ;o completed durin the month. Answer:
1. D6 cost 27 rate pplied 27
Bo 1#) Bo 1#! Bo 1#5 Bo 1#-00 !0 1,!00 5,1#0 1$0 1$0 1$0 1$0 1,0$0 1,-# #,5#0 ,#1-
#. D'
Bo 1#) )00
Bo 1#! 1,0$0
Bo 1#5 3#0
-00
!0
1,!00
1,0$0
1,-#
#,5#0
Bo 1#T2T6 !,#00
-,)00 D6
5,1#0
$,0-0 2 1!,50$ T2T6 #$,$-$
1,$0
),31#
!,-!0
,#11$,5)-
Problem 5
Thermal Corporation has two producin department and two service departments laeled. /1, /#, @1, and @#, respectively. Direct costs for each department and the proportion of services costs used y various departments are as follows& Cost Direct /roportion of services used y&
Center /1 /# @1 @#
0 -0 #0 )#
Costs 000 000 000 000
@1 .$0 .#0
@#
.10 .50
/1
/#
.10 .)0
In calculatin predetermined overhead rates, machine hours are used as the ase in /1 and direct laor hours as the ase in /#. /1 /# 'achine hours 50 000 !0 000 Direct laor hours !0 000 #0 000 %e"uirements& 1. llocate the service department costs to operatin departments and compute the factory overhead rate for /1 and /# usin the followin methods& . Direct 'ethod <. @tep method start with @1 C. leraic 'ethod #. ssume the company uses ;ust one asis for applyin overhead to ;os oin throuh oth /1 and /#, compute the overhead rate usin direct laor hours as ase. Answer:
1. . Direct Cost )# 000 llocated 27& @1 @# )# 000 Total 27
/1 0 000 10 000 #0 000
/#
@1 -0 000
10 000 1# 000
@# #0 000 8#0 0009
1#0 000 $# 000 50 000*mhrs #0 000*dlhrs #.!*mhrs !.1*dlhrs
<. Direct Cost )# 000 llocated 27& @1 000 @# 8!$ 0009 Total 27
0 000 # 000 )0 000 1## 000 50 000*mhrs
-0 000 # 000
8#0 0009 1$ 000
$0 000 #0 000*dlhrs
#0 000 1-
27 %ate
#.!!*mhrs
!*dlhrs
C. Direct Cost )# 000 llocated 27& @1 1!) @# 853 1!)9 Total 27
0 000 ) 1!)
-0 000 ) 1!)
#$ 53# 1#1 315 50 000*mhrs #.!)*mhrs
13 1!)
#0 000 )1 !#
#5 811 !#9
$# #$#0 000*dlhrs !.01*dlhrs
@1 + #0,000 E #0 @# @# + )#,000 E $0 @1
@1
+ #0000 E #0 8 )#,000 E $0 @19 + #0,000 E -,!00 E .1- @1 @1 .1-@1 + #-.!00 @1 + #-,!00*.$! + )1,!#
@#
+ )#,000 E $0 )1,!# + )#,000 E #5,1!) + 53,1!)
Problem 6
The
Department
@"uare eet
Ast. Direct 6aor
hours
%epair Cafeteria 'achinery ssemly Total
1,500 1,$00 #,000 ),000 $,)00
),500 1,#00 #,)00 1,300 $,300
The costs of the %epair Department are allocated on the asis of s"uare feet. The costs of the cafeteria Department are allocated on the asis of estimated direct laor hours. The producin departments use estimated direct laor hours& 1,500 in Department and 1,#50 in Department <. %e"uired& llocate the total costs of the service departments to the producin departments 8compute the departments: factory rate9 y usin the followin& 1. Direct method #. @tep method start with the repair Department
Answer:
1. Direct 'ethod Direct cost llocated cost& %epair Cafeteria Total 27
'achinery / 5#,500
ssemly / !$,000
%epair / 1!,000
5,-00> -,)#5>>> / -!,-#5 1,500D67rs . / !).0$D67r.
$,!00>> !,-35>>>> / -1,035 1,#50 D67rs
8 1!,0009
/!$.$-*D67r .
*81! 000 x #*59
>>81! 000 x )*59 ***811 000 x # )00*! 0009 ****811 000 x 1 300*! 0009
Cafeteria / 11,000
8 11, 0009
#. @tep 'ethod 'achinery Direct cost / 5#, 500 llocated cost %epair !, 11> Cafeteria $, !55>>>> Total / -5, 03!
ssemly / !$, 000
%epair / 1!, 000
Cafeteria / 11, 000
-, 13->> -, #50>>>>> / -0, !#1, #50 D67rs /!$.)!*D67 r.
8 1!, 0009
), 305>>> 8 1!, 3059
>81! 000 x # 000*- $009 >>81! 000 x ) 000*- $009 >>>81! 000 x 1 $00*- $000 >>>>81! 305 x # )00*! 0009 >>>>>81! 305 x 1 300*! 0009
Problem 7
Central /arkway Corp. has two producin and two service departments laeled /1, /#, @1, @#, respectively. Direct cost for each department and the portion of service costs used y the various departments are as follows& Cost Direct /roportion of service used y& Center Costs @1 @# /1 /# /1 / 1#0,000 /# $0,000 @1 #5,000 .#5 .50 .#5 @# 10,000 .10 .50 .!0 %e"uired& llocate the service department cost usin aleraic method. Answer:
Direct cost llocated @1 @# Total @1 @#
/1 1#0, 000
/# $0, 000
@1 #5, 000
@# 10, 000
1), ))) $, ))) 1!1, ---
-, --3 -, --3 ), ))!
8 #-, --39> 1, --3
-, --3 81-, --39>>
+ + @1
#5, 000 E 10 of @# 10, 000 E #5 of @1
+ + @1 .0#5 @1 @1 + +
#5, #5, + #-, #-,
@#
10, 000 E .#58#-, --39 1-, --3>>
+ +
000 E 10 810, 000 E .#5@1 000 E 1, 000 E .0#5@1 #-, 000 000*.35 --3>
Problem 8
'eastar Company:s normal operatin capacity is estimated at 5,000 machine hours per month. t this operatin level, Fxed factory overhead is estimated to e /)!, #00 and variale factory overhead is estimated to e /!1,$00. Durin Govemer, the company operated 100,000 machine hours. ctual factory overhead for the month totalled /3$, -00.
%e"uired& Compute for the followin 1. The over or under applied factory overhead. #. The spendin variance. ). The idle capacity variance. Answer:
ixed Hariale 1.
Total )!,#00 !1,$00 3-,000
/er 'ach.7r. 0.)0.!! 0.$0
ctual factory overhead 6ess& pplied 2verapplied factory overhead
8)!,#00*5,0009 8!1,$00*5,0009 / 3$,-00 $0,000> 8 1,!009
>8100,000 x .$09 #.
ctual factory overhead 6ess& @pendin variance unfavorale >8100,000 x .!!9 ).
/ 3$, -00 3$, #00 / !00 / 3$, #00 $0, 000 8 1, $009
Problem 9
Gormal annual capacity for ner Company is 3#,000 units, with Fxed factory overhead udeted at /)), $!0 and an estimated variale factory overhead rate for /!.#0 per unit. Durin 2ctoer, actual production was 5,!00 units, with a total overhead of /15, 10. %e"uired& Compute for the followin 1. The applied factory overhead #. The over or under applied factory overhead ). The spendin variance !. The idle capacity variance
Answer:
1. ixed Hariale Total
Total /er unit / )), $!0 / 0.!3 8)), $!0*3#, 0009 )0#, !00 !.#0 83#, 000 x !.#09 /))-, #00 / !.-3
+5, !00 x !.-3 +#5, #1$ #.
ctual actory 2verhead 6ess& pplied actory 2verhead (nderapplied actory 2verhead >85, !00 units x / !.-39
/ 15, 10 #5, #1$> 8/ , )0$9
).
ctual actory 2verhead 6ess&
Hariale ##, -$0>> @pendin variance favorale >8)), $!0*1# months9 >>85, !00 x !.#09 !.
/ 15, 10
#5, 500 8/ , 509
/#5, 500 #5,#1$ / #$#
Problem 1
Gorman Corporation uses a exile udet system a prepared the followin information for #01#. Gormal capacity 'aximum capacity /ercentae of capacity $0 100 Direct laor hours !$,000 -0,000 Total udeted factory overhead /#5#, 000 /#30, 000 Gorman planned to operate at normal capacity ut actually operated at 0 of maximum capacity durin #01#. The actual factory overhead for #01# was /#3), 000. %e"uirements& 1. (sin 7I62 method, compute for the variale rate per hour. #. Determine the Fxed portion of the udeted factory overhead. ). Compute for the spendin variance. !. Compute for the idle capacity variance. Answer:
1.
Hariale rate*hour
+ J#30, 000 #5#, 000J -0, 000 !$, 000
+ /1.50*D67r. #.
Total 6ess& Hariale 8-0, 000 x 1.509
7ih #30, 000 0, 000
6ow #5#, 000
8!$, 000 x 1.509 ixed
JJJJJJJ 1$0, 000
actory 2verhead rate + #5#, 000 !$, 000 ctual factory overhead 6ess& pplied 2verapplied actory 2verhead >8-0, 000 x 09 x 5.#5
JJ
3#, 000J 1$0, 000
+ 5.#5* D67rs. #3), 000 #$), 500> 810, 5009
).
ctual factory overhead #3), 000 6ess& #-1, 000 @pendin variance unfavorale 1#, 000 >85!, 000 x 1.509 !.
#-1, 000 #$), 500J 8##, 5009
Problem 11
The strawerry Corporation has the followin information relatin to applied and actual factory overhead. actory overhead control /)0, 500 pplied factory overhead ),300 pplied factory overhead costs are in the followin accounts. Cost of oods sold /)#, 000 Andin work in process inventory ),500 Andin Fnished oods inventory !,#00 %e"uired& a. llocate the under or overapplied factory to those accounts distorted y usin what turned out to e an incorrect factory overhead application rate. . /repare the endofperiod entries. Answer:
a.
ctual factory overhead 6ess& pplied factory overhead
)0,500 J),300J
2verapplied factory overhead favorale Cost of oods sold =ork in process inventory inished oods inventory
.
8, #009
)#, 000*), 300 x , #00 + 3,!1), 500*), 300 x , #00 + $11J !, #00*), 300 x , #00 + 3) ,#00
pplied factory overhead Cost of oods sold =ork in process inventory
),300 3,!1-
$11 inished oods inventory 3) actory overhead control )0,500
Problem 12
or many years Tinor Company has used a manufacturin overhead rate ased on direct laor hours. new plant accountant has suested that the company may e ale to assin overhead costs to products more accurately y usin an activityased costin system. The accountant explains that y creatin an overhead rate for each production activity that causes overhead costs, the resultin product costs will reect an accurate measure of overhead cost. The direct material cost is /1#0 per unit. The udeted hours are $,0)0 direct laor hours. The accountant has identiFed activity centers to which overhead costs are assined. The cost pool amounts for these centers and their selected activity drivers for #01#. CTIHITK CAGTA%@ D%IHA%@ 'aterials handlin times handled @chedulin and setups Desin section Go. of parts
C2@T@
CTIHITK
/ -0, 000 $0, 000 10, 350 50, 000 / #00, 350
1,#00
!00 setups 100 chanes 500 parts
The company:s products and other operatin statistics follow&
Lty. Go. of /rod. /roduced @etups 50 < 100
D67
D6
(sed
Cost
100 )00
/-, 000 1$,000
Go. of time Go. of 7andled #0 !0
10
Go. of
/arts
Chanes ) 5
5 3
%e"uired& 1. Compute the unit cost for each product usin direct laor hours as the overhead application ase. #. Compute the unit costs for each product usin activityased costin.
Answer:
1. /roduct /roduct < Direct materials 850 x /1#09 / -,000 8100 x /1#09 / 1#, 000 Direct laor 1,000 ), 000 actory overhead 8100 x / #59 #,500 8)00 x / #59 3, 500 Total manufacturin cost / ,500 / ##, 500 Go. of units 50 100J Cost per unit / 10*unit / ##5*unit actory overhead rate + /#00, 350*$,0)0 direct laor hours + / #5*D67r. #. /roduct /roduct < Direct materials 850 x /1#09 / -,000 8100 x /1#09 / 1#,000 Direct laor 1,000 ),000 actory overhead 'aterial handlin 8!0 x /509 #,000 8#0 x /509 1,000 @chedulin M setup 83 x #009 1,!00 85 x #009 1.000 Desin section 85 x / 103.509 5)3,500 8) x 103.509 )##.50 Go. of parts 810 x 1009 1,000 8- x 1009 -00J Total costs / 11,)3.50 / 13,##.50 Go. of units 50JJ 100J Cost per unit / #)$.35*unit / 13.#)*unit
!R"E#$ALSE %"ES!&O'S Indicate whether the followin statements are true or false y insertin in the lank space provided, a capital NTO for true or NO for false. 1. @ervice departments are sometimes called indeterminate cost centers , while production departments would e the Fnal cost centers. #. @ervice departments are production departments, such as assemly departments, that manufactured oods. ). 2ne of the purposes of service department cost allocation is to value in inventory for external Fnancial reportin. !. The direct method is a method of cost allocation that chares costs of service departments to user departments and inores any services used y other service departments. 5. (nder, the step method of cost allocation, the Fnal amount of pesos allocated to any production department is inuenced y the order in which the allocation is made from the service departments. -. If there are no interservice department activities, then all three allocation methods will ive identical results. 3. =hen a plantwide rate is used, this means that a sinle rate used to allocate overhead to all departments in the company. $. =ith the aleraic method, each department:s costs are set out in an e"uation where total costs e"ual the sum of direct costs and allocated costs. . Interservice departments activities are fully inored y oth the direct and step methods of cost allocation. 10. 2verapplied overhead occurs when actual is less than applied 27. 11. The predetermined overhead rate is an amount otained y dividin the total overhead for the past period y the total overhead allocation ase for the comin period. 1#. =hen overapplied overhead is assined to Cost of ?oods @old, the ePect is to increase the alance on the Cost of ?oods @old account. 1). The numerator reason refers to the overhead variance caused y the diPerence etween the estimated and actual 27 costs for the period. 1!. If all manufacturin overhead costs were variale, the production volume variance would always e Qero.
15. The sum of the spendin variance and the volume variance e"uals the total manufacturin overhead variance.
A'S(ER:
1. T #. ). T !. T 5. T
-. T 3. T $. T . 10. T
11. 1#. 1). 1!. 15.
T T T
M"L!&PLE )O&)ES 1 'anufacturin overhead applied was /1#0, 000, while actual overhead incurred was /1#!, 000. =hich of the followin is always true of the aoveR a Direct laor activity was overestimated. 2verhead was overapplied y /!, 000. c 2verhead was underapplied y /!, 000. d This diPerence must e reported as a loss for the period. # Depreciation ased on the numer of units produced would e classiFed as what type of costR a 2utofpocket 'arinal c Hariale d ixed
) The only method of allocatin service department costs to producin departments that considers reciprocal service is called the a Direct method @tep method c 2utofstep method d leraic method !. In the determination of factory overhead application rates, the numerator of the formula is the& a. ctual factory overhead for the next period . Astimated factory overhead for the next period c. ctual laor hours for the next period d. Astimated laor hours for the next period 5. The variale factory overhead application rate under the normal, practical, and expected activity levels would e the same a. Axpect for normal volume . Axpect for practical capacity c. Axpect for expected activity d. or all three activity levels -. =hich productive capacity level does not consider product demand, ut at the same time accounts for anticipated and unavoidale interruptions in productionR a. Axpected productive capacity . Gormal productive capacity c. Theoretical or maximum productive capacity d. /ractical productive capacity 3. =hich productive capacity level does not have provision for either a lack of sales orders or interruptions in production 8due to work stoppaes, machine repairs and maintenance, setup time, holidays, weekends, etc. a. Axpected productive capacity . Gormal productive capacity c. Theoretical or maximum productive capacity
d. /ractical productive capacity $. =hich productive capacity level is ased in estimated production for the next periodR a. Axpected productive capacity . Gormal productive capacity c. Theoretical or maximum productive capacity d. /ractical productive capacity . =hich of the followin descries a part of step method of allocationR a. ll services etween intermediate cost centers are simultaneously allocated to Fnal cost centers. . It inores services etween intermediate cost centers c. 6inear alera is re"uired for the allocation d. 2nce an allocation is made from on service department, no further allocation is made to this department.
10. =hich of the followin is not true of the methods of allocatin service department costs to user departmentsR a. cause and ePect asis is the preferred method of allocation . Aach method allocates the same total cost when there are no interservice department activities. c. If a cause and ePect relationship cannot e estalished for service department costs, then an allocation cannot e conducted. d. The level of detail associated with allocatin service department costs should e decided on a costeneFt asis. Answer:
1. c #. c ). d !. 5. d
-. d 3. c $. a . d 10. a
M"L!&PLE )O&)E + PROBLEMS The followin information for %am Corporation relates to "uestion 1 and # @ervice departments 8total estimated costs9
Ast. @". t. Go.
of
350 1)0 $0 #.))0
!0 #,500 1,!00
The ase to e used for allocatin the cost of
/roportion of service y < to& )0 C #0 D 50 5. (sin the aleraic method, department :s cost allocated to department C is& a. / !$,000 . / 5$,$00 c. / -0,-1 d. / $,000
-. (sin the aleraic method, department <:s cost allocated to department C is& a. / 3,3! . / 1),1# c. / 1!,0#1 d. / #,0#1 '% Corp. currently uses a Frmwide overhead application ased on expected direct laor hours.The followin information is anticipated at the einnin of the year. Department Department < Direct materials / #5.00*1. / 13.00*1. Direct laor hours 10,000 5,000 'achine hours #,000 10,000 2verhead /115, 000 /$5, 000 6aor rate / 15.00*hr / 1#.00*hr 3. If the Frm maintains the current method, the overhead application rate is& a. / 3.-3*hr . /11.50*hr c. /1).))*hr d. /#0.00*hr $. If departmental rates were adopted,what would e the rates for Departments 8
c. /#,000 underappld d. /),500 underapplied The followin information relates to Donna Corporation for the last year. Donna uses direct laor hours as anoverhead ase. Astimated direc laor hours 1)-,000 hours Astimated manufacturin overhead costs / 10$,$00 ctual manufacturin overhead costs 10$,!$0 pplied manufacturin overhead costs 110,000 10. =hat was the actual numer ofn direct laor hours worked last year at DonnaR a. $-,3! hours . $$,)#0 hours c. 1)5,-00 hours d. 1)3,500 hours D:@antos uses a ;oorder cost system with machine hours as an overhead ase. The followin information relates to D:@antos for last year& Astimated machine hours for the year !#,000 ctual machine hours for the year !0,$00 /redetermine overhead rate /1.50 per '7 (nderapplied factory overhead / #,-00 11. a. . c. d.
=hat is the peso amount of the followin itemsR Astimated 27 pplied 27 ctual 27 / -1,#00 / -),000 /-0, !00 /-1, #00 -),000 -5,-00 /-), 000 -1,#00 1$,-00 /-), 000 -1,#00 -),$00
Bustine Company udeted total variale overhead costs at / 1$0,000 for the current period. In addition, they udeted costs for factory rental /#15, 000, costs for depreciation of oSce e"uipment at /1#, 000 costs for oSce rent at /#,000, and costs for deprecation of factory e"uipment at )$, 000. ll these costs were ased upon estimated machine hours $0,000. t the end of the period, the actory 2verhead control account had a alanced of /)$3, $35. ctual machine hours were 3!,000. 1#. =hat as the over or underapplied factory overhead for the periodR a. / 1#,-50 overapplied . / 1#,-50 uderapplied c. / 10$,$50 overapplied d. / 10$,$50 underapplied
Candice Company uses activityased costin to determine the unit product costs for external reports. The company has two products& Candy and Candy <. The annual production sales of Candy are 10,000 units and of Candy < are !,000 units. There are three overhead centers, with estimated overhead costs and expected activity as follows& ctivity Center ctivity 1
Ast. overhead
Axpected ctivity Candy Candy < Total 150 100
#5,000
ctivity #
-5,000
$00
ctivity )
0,000
1,000
#50 #00
1,000 #,000
),000
1). The overhead cost per unit of Candy under activityased costin is a. /-.00 . /.30 c. /1.50 d. /).00 e. The followin information relates to /ure Corporation for the past accountin period . @ervice Department Direct Cost /$0, 000 < -0, 000 /roducin Department C 15, 000 D #0, 000 /roportion of service y to& < 10 C -0 D )0 /roportion of service y < to& )0 C #0 D 50 1!. (sin the simultaneous method, Dept. :s allocated to Dept. C is a. /!0,000 . /5$,$00 c. /-0,-1 d. /$,000
'arvine Company uses a ;o costin system and applies overhead to products on the asis of direct laor cost. Bo no. 35 the only ;o in process on Banuary 1 had the followin costs assined as of that date& direct materials, /!0, 0004 direct laor, /$0, 0004 and factory overhead, /1#0, 000. The followin selected costs were incurred durin the year #01-& Traceale to ;os& Direct 'aterials / 13$,000 Direct laor )50,000 /5#), 000 Got traceale to ;os& actory materials and supplies !-,000 Indirect laor #)5,000 /lant maintenance 3), 000 Depreciation on factory e"uipment #, 000 2ther factory costs 3-, 000 !5, 000 'arvin:s proFt plan for the year included udeted direct laor of /)#0, 000 and factory overhead of /)$!, 000 15. ssumin no workinprocess on Dec. )1, 'arvin:s overhead for the year as a. /11,000 overapplied . /#!,000 overapplied c. /),000 underapplied d. /11,000 underapplied Candice Corporation produces reusale Christmas cards in two departments& printin and laminatin. These departments are supported y two service departments& /ersonnel and 'aintenance. /ersonnel use the numer of employees as an allocation ase and 'aintenance uses machine hours. The expected level of activity for next "uarter is shown elow. Go. of employees 'achine hours /ersonnel !0 'aintenance -0 /rintin 1#0 -0,000 6aminatin 1$0 !0,000 llocations are made in the order shown aove.
1-. =hat is the total amount of service cost that should e allocated to the /rintin Department under the direct and step methodR Direct method @tep method a. /-$,300 /33,030 . /33,030 /3$,000 c. /3$,000 /$1,100 d. /3$,000 /33,030 @uper @oak produces two types of spones& Gatural and @upersuds.
Total setup cost incurred
/#0, 000
/ !0,000
/-0,
000 Direct laor hour per unit # 1 traditional costin system would allocate setup costs on the asis of direct laor hours. n
A"uipment
/roduction
Dept. @ervin Cost Center @upervision 'aintenance 2ccupancy 1 Dept.# @upervision 0 10 5 !0 !5 A"uinpment maint. 0 0 0 !5
Dept.
55 )5
#0. If the direct method of allocation is used, how much of the supervision department:s cost would e allocated to the uildin occupancy departmentR 8@tart with
d. / 5, #50 #1. If the direct method of allocation is used, how much of the e"uipment maintenance costs would e allocated to production department Go. 1R a. 0 . / 1), 500 c. / 1-, 500 d. / )0, 000 ##. If the step method of allocation is used, how much would e allocated from supervision to production department Go. 1 a. / 1!, 000 . / 1-, !31 c. / 13, -00 d. / 1$, 500 #). If the step method of allocation is used, how much would e allocated from supervision to uildin occupancyR a. 0 . / 1, 350 c. / #, #00 d. / #, !!! @taraQer Company loed 3, #50 machine hours for the month of Bune. /!#, 500 was spent for manufacturin overhead and this overhead is allocated on the asis of machine hours. The Company operates 5 departments4 however, one department was closed for the month of Bune due to poor market conditions for its product. It was decided that this department should e allocated a lump sum of 5, 000 as its share of Bune overhead. #!. If
