MA42 Problem: Departmental Costing and Cost Allocation – Peters Ltd.

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MA42 Problem: Departmental Costing and Cost Allocation – Peters Ltd.

 

The Peters Company Ltd. consists of four departments: Personnel and Purchasing, which areservice departments; Machining and Painting, which are production departments. Budgeted datafor the year consisted of the following:

Item PersonnelPurchasingMachining Painting 

Overhead Costs $40,000 $35,000 $128,000 $48,000# of Employees 10 15 25 138Machine Hours 0 0 23,500 29Direct Labour Costs 0 0 $32,000 $147,000Purchase Requisitions 6 0 2,650 450 Required:a)

 

Allocate the two service departments’ costs using the step-down allocation method, anddevelop departmental overhead rates for each of the production departments using the mostlogical base for each department. b)

 

Calculate and give the journal entry to record the total amount of under- or over-appliedoverhead for the company, assuming the following actual results for the year:

Machining Painting 

Overhead Costs $173,000 $78,540Direct Labour Costs $38,300 $139,750Machine Hours 24,150 29 c)

 

Briefly discuss reasons for allocating service department costs

    • 9 years ago
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