Question 5 Spectra Company has two service departments and two operating departments. Budgeted costs and budgeted...

 

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Question 5 Spectra Company has two service departments and two operating departments. Budgeted costs and budgeted activity in the various departments for the current year are shown below: Departmental cost Square feet occupied Number of employees Machine hours Labor hours Service Departments Cafeteria Custodial Tk. 126,000 Tk. 70,000 1,000 2,000 20 100 Operating Departments Milling Tk. 300,000 8,000 150 80,000 10,000 Finishing Tk. 500,000 24,000 200 20,000 40,000 The company allocates cafeteria department costs first on the basis of number of employees and then custodial services costs on the basis of square feet of space occupied. Milling Department Finishing Department Required: (i) Allocate service department costs to operating departments by the step-down method. Then compute predetermined overhead rates in the operating departments, using a machine-hours basis in Milling and a labour-hours basis in Finishing. (ii) Repeat (a) above, this time using the direct method. Again, compute predetermined overhead rates in the operating departments, using a machine-hours basis in Milling and a labour-hours basis in Finishing. (iii) Assume that company doesn't bother with allocating service department costs but simply computes a single plant-wide overhead based on total overhead costs (both service department and operating department costs) divided by total machine hours. Compute the plant-wide overhead rate. (iv) Suppose a job requires machine and labor time as follows: Machine-Hours Labor-Hours 50 380 20 150 Total Hours 400 200 Using the overhead rates computed in (i), (ii), and (iii) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step method, direct method, and the plant-wide method. (v) Explain to the management why the step-down method provides a better basis for computing predetermined overhead rates than the other methods. Question 5 Spectra Company has two service departments and two operating departments. Budgeted costs and budgeted activity in the various departments for the current year are shown below: Departmental cost Square feet occupied Number of employees Machine hours Labor hours Service Departments Cafeteria Custodial Tk. 126,000 Tk. 70,000 1,000 2,000 20 100 Operating Departments Milling Tk. 300,000 8,000 150 80,000 10,000 Finishing Tk. 500,000 24,000 200 20,000 40,000 The company allocates cafeteria department costs first on the basis of number of employees and then custodial services costs on the basis of square feet of space occupied. Milling Department Finishing Department Required: (i) Allocate service department costs to operating departments by the step-down method. Then compute predetermined overhead rates in the operating departments, using a machine-hours basis in Milling and a labour-hours basis in Finishing. (ii) Repeat (a) above, this time using the direct method. Again, compute predetermined overhead rates in the operating departments, using a machine-hours basis in Milling and a labour-hours basis in Finishing. (iii) Assume that company doesn't bother with allocating service department costs but simply computes a single plant-wide overhead based on total overhead costs (both service department and operating department costs) divided by total machine hours. Compute the plant-wide overhead rate. (iv) Suppose a job requires machine and labor time as follows: Machine-Hours Labor-Hours 50 380 20 150 Total Hours 400 200 Using the overhead rates computed in (i), (ii), and (iii) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step method, direct method, and the plant-wide method. (v) Explain to the management why the step-down method provides a better basis for computing predetermined overhead rates than the other methods.

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a Stepdown Method Departmental costs before allocations Allocations Cafeteria 100450 150450 200450 C... View the full answer