Dave Ltd manufactures glass for the construction industry. The company has two production departments: Machining and...
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Dave Ltd manufactures glass for the construction industry. The company has two production departments: Machining and Finishing. There are also two support departments: Ordering and Design. The budgeted overhead costs for the year for each department are as follows: Ordering $250,000 Design $130,000 Machining $600,000 Finishing $400,000 The budgeted machine hours for the Machining Department are 24,500, and the budgeted direct labour hours for the Finishing Department are 8,500. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments' output for the year is as follows: Providers of services: Ordering Department No. of Orders Design Department Machine hours Allocation base Users of services: Ordering Department Design Department Machining Department Finishing Department 500 1000 4500 4500 3500 6500 Required: (a) List and explain the sequence that should be followed to allocate the support department costs to production departments using the step-down method in Dave Ltd. (b) Determine the overhead application rates for each production department using the step down allocation method in Dave Ltd. (c) Which of the three methods of support department cost allocation (direct, step- down and reciprocal) results in the most accurate overhead rates? Why? (d) What factors should be considered when choosing the best support department cost allocation method? Dave Ltd manufactures glass for the construction industry. The company has two production departments: Machining and Finishing. There are also two support departments: Ordering and Design. The budgeted overhead costs for the year for each department are as follows: Ordering $250,000 Design $130,000 Machining $600,000 Finishing $400,000 The budgeted machine hours for the Machining Department are 24,500, and the budgeted direct labour hours for the Finishing Department are 8,500. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments' output for the year is as follows: Providers of services: Ordering Department No. of Orders Design Department Machine hours Allocation base Users of services: Ordering Department Design Department Machining Department Finishing Department 500 1000 4500 4500 3500 6500 Required: (a) List and explain the sequence that should be followed to allocate the support department costs to production departments using the step-down method in Dave Ltd. (b) Determine the overhead application rates for each production department using the step down allocation method in Dave Ltd. (c) Which of the three methods of support department cost allocation (direct, step- down and reciprocal) results in the most accurate overhead rates? Why? (d) What factors should be considered when choosing the best support department cost allocation method?
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Related Book For
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil
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