MANAGEMENT XL122 SPRING 2014

MANAGEMENT XL122 SPRING 2014

MANAGEMENT ACCOUNTING DANNY S. LITT

CASE ASSIGNMENT 1 

DSL Company has two manufacturing departments – the Machining Department 

and the Assembly Department. Each department has a different overhead cost 

driver – machine hours in the Machining Department and assembly labor hours in 

the Assembly Department. Different jobs need different amounts of machining and 

assembly resources. The company allocates Machining Department overhead costs 

using machine hours and Assembly Department overhead costs using labor hours. 

Details of the company’s budgeted manufacturing overhead costs of $1,120,000 

for 2014 are shown below: 

The Engineering and Production Control Department supports all the engineering 

activity in the other departments. The Materials Management Department is 

responsible for managing and moving materials and components required for 

different jobs. Each job at the company is different and requires small quantities of 

unique components to be machined and assembled. 

The overhead rate for the Machining Department is based upon 10,000 machine 

hours. The overhead rate for the Assembly Department is based upon 20,000 direct 

labor hours. 

Expense

Engineering and 

Production Control

Materials 

Management   Machining  Assembly     Totat Budget

Supervisors Salary 48,000 40,000 52,000 60,000 200,000 

Engineering salaries 110,000 36,000 60,000 24,000 230,000 

Depreciation and maintenance 39,000 55,000 79,000 20,000 193,000 

Indirect materials 20,000 12,000 11,000 7,000 50,000

Indirect labor 43,000 63,000 44,000 45,000 195,000 

Rent, utilities and insurance 16,000 24,000 64,000 48,000 152,000 

Plant admin 24,000 20,000 26,000 30,000 100,000 

 300,000 250,000 336,000 234,000 $ 1,120,000

Support Departments Operating DepartmentsMANAGEMENT XL122 SPRING 2014

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The departmental costs and support percentages are shown below: 

Assume the company has two service departments and their costs are recorded in 

these departments and are allocated to two production departments. All four 

departments share the same building. Each service department is an intermediate 

cost center whose costs are recorded as incurred and then distributed to other cost 

centers. 

Requirements 

You have been hired as consultant to the company. Prepare an analysis and letter to 

the president allocating the overhead costs and determining the total departmental 

costs and their respective overhead rates based upon the following methods: 

1. Direct method 

2. Step method 

3. Reciprocal method 

Operating Departments

Engineering 

and Production 

Control

Materials 

Management Machining Assembly Total Budget

Overhead Budget 

before allocations 300,000 250,000 336,000 234,000 1,120,000 

Services Provided by

Engineering and Production Control

Salaries 36,000 60,000 24,000 120,000 

Percentage 30% 50% 20% 100%

Materials Management

Labor Hours 400 800 2,800 4,000 

Percentage 10% 20% 70% 100%

Support Departments