Broadway Motors allocates the maintenance and human resources department costs to the parts department, sales department and
Question:
Broadway Motors allocates the maintenance and human resources department costs to the parts department, sales department and the service garage. Human resources and maintenance also provide services to each other. Human resources costs are allocated by number of employees. Maintenance costs are allocated based on square footage. Costs and other information for the month of March were as follows:
Human Resources | Maintenance | Parts | Sales | Total | |
Budgeted Overhead Costs | $300,000 | $500,000 | $250,000 | $400,000 | $1,450,000 |
Number of Employees | 7 | 8 | 10 | ||
Square footage | 2,000 | 5,000 | 3,000 |
Required:
1. Allocate service costs using the step-down method. Allocate the human resources department first. Determine total amount of cost for Parts and Sales (12 marks ).
2. Allocate service costs using the direct method.(8 marks)
3. Allocate service costs using the reciprocal method.Do not allocate to Parts and Sales.
a. Provide the formulas for the reciprocal relationships (2 marks)
b. Solve for amounts for Human Resources and Maintenance (2 marks)
4. explain why a company may use direct method, step method or reciprocal method (6 marks)
5. explain value added and non-value added costs.(5 marks)
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan