SuperDry manufactures and sells T-shirts for all kinds of events. The company has two manufacturing operations...
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SuperDry manufactures and sells T-shirts for all kinds of events. The company has two manufacturing operations shirt-making and printing. When the company receives an order, the shirt-making department obtains the materials requested and has the fabric cut and sewn to sizes. The ready T-shirts are then sent to the printing department where the customer labels or designs are prepared and printed onto the surface with hot press machines. SuperDry has three support departments Building Maintenance, Human Resources and Designs & Patterns. For the 1st quarter of 201X, the direct/direct overhead costs incurred by each department are as follows (direct costs for S1-S3; direct overhead costs for P1, P2 and R): Shirt-making (P1) Printing (P2) Sales (R) $260,000 $170,000 $ 84,000 Building Maintenance (S1) $65,000 Human Resources (S2) $40,000 Designs & Patterns (53) $38,000 The cost drivers identified for costs incurred by S1, S2 and S3 are number of square footage, number of employees and number of designs respectively. The following table summarises the usage of cost drivers by each department: S1 S2 S3 P1 P2 R Number of Designs Number of Employees - - - 16 30 8 4 2 6 20 12 12 5,000 10000 10,000 15,000 25,000 5,000 Square Feet Required: (i) SuperDry allocate support department costs using the step-down method. Recommend the order by which SuperDry should do so. Justify your recommendation. (ii) Compute the total amount of overhead costs for P1, P2 and R using the step-down method and based on the order recommended in part (i). SuperDry manufactures and sells T-shirts for all kinds of events. The company has two manufacturing operations shirt-making and printing. When the company receives an order, the shirt-making department obtains the materials requested and has the fabric cut and sewn to sizes. The ready T-shirts are then sent to the printing department where the customer labels or designs are prepared and printed onto the surface with hot press machines. SuperDry has three support departments Building Maintenance, Human Resources and Designs & Patterns. For the 1st quarter of 201X, the direct/direct overhead costs incurred by each department are as follows (direct costs for S1-S3; direct overhead costs for P1, P2 and R): Shirt-making (P1) Printing (P2) Sales (R) $260,000 $170,000 $ 84,000 Building Maintenance (S1) $65,000 Human Resources (S2) $40,000 Designs & Patterns (53) $38,000 The cost drivers identified for costs incurred by S1, S2 and S3 are number of square footage, number of employees and number of designs respectively. The following table summarises the usage of cost drivers by each department: S1 S2 S3 P1 P2 R Number of Designs Number of Employees - - - 16 30 8 4 2 6 20 12 12 5,000 10000 10,000 15,000 25,000 5,000 Square Feet Required: (i) SuperDry allocate support department costs using the step-down method. Recommend the order by which SuperDry should do so. Justify your recommendation. (ii) Compute the total amount of overhead costs for P1, P2 and R using the step-down method and based on the order recommended in part (i).
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Answer i The stepdown method involves allocating support department costs to other departments in a ... View the full answer
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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