Fabricating and Finishing are two production departments of Michaels Manufacturing. Building Operations and Information Services are support
Question:
Fabricating and Finishing are two production departments of Michaels Manufacturing. Building Operations and Information Services are support departments. “Building Operations” provides services to both support and production departments. YOU ARE THE MANAGER OF THE FABRICATING DEPARTMENT!
“Information Services” does NOT provide any services for non-production areas of the company.
The company employs departmental overhead rates and both producing departments use machine hours to allocate their overhead. Square footage is used to allocate building operations, while computer time is used to allocate information services.
The budgeted and actual cost data of the support departments, departmental overhead and other relevant operating data are as follows:
QUESTIONS
1) Under the Step Method, what will be the POHR (PREDETERMINED OVERHEAD RATE) that will be used in your Fabricating department for product costing during the year (per machine hour)?
2) Your Building Operations department is a cost center. Thus, at the end of the year you will receive a responsibility-accounting based report comparing your budgeted direct costs and support costs and comparing these to the actual.
Based on your computations above, how much total cost will your Building Operations department be held accountable for (charged with) for performance evaluation purposes?
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins