ADM 3346 - Intermediate Management Accounting - Summer 2022

Assignment - Cost allocation

Your assignment submission must be typed up in either Word or Excel and uploaded (one file only - Excel preferred) to the assignment drop-box before midnight Tuesday June 21.

Question 1

Kay and Dee Manufacturing (K+D) has three business lines:

• Repair and Overhead (R+O): Repair of truck transmissions.
• Manufacturing: manufacturing of custom truck transmission parts
• Chemical Treating: cleaning of old parts

They also have four support departments. Major activities of each department are:

• Human Resources (HR): Payroll, HR staff, employee services, Union/Management relations.Costs for this service department are allocated based on Headcount.
• Facility: buildings, building maintenance and related building costs.Costs for this service department are allocated based on area occupied.
• Main Office (HQ): salaries for the President, VP, and Finance department.Costs for this service department are allocated based on Direct Labour hours.
• Information Technology (IT): IT costs for the entire organization, including servers.Each part of the organization has different IT needs. The biggest users are HR (for the payroll system) and Chemical Treatment (for a legacy system that runs all of the chemical processing equipment).

Other financial information is in Appendix A.

REQUIRED:

1. Briefly comment on the cost drivers for the support departments. (ie. Do you think they are appropriate, or can you recommend something better? Briefly explain your answer)

1. Using the Direct Method, allocate overhead costs from the support departments to the business lines.

1. Using the Step-down method, allocate overhead costs from the support departments to the business lines in the following order:

1^st HQ

2^nd Building

3^rd IT

4^th HR

1. Using the Reciprocal Method, allocate overhead costs from the support departments to the business lines.