Deck 7: Departmental Overhead Costing

Question 1

Which of the following would be classified as a service department?

A) The bottling department of a soft drink manufacturer
B) The painting department of an automobile manufacturer
C) The accounting department of a manufacturing company
D) The claims processing department of an insurance company

Answer 1

C

Question 2

Shane & Sons Watchmakers has many departments.Of these,Department A occupies 20 square metres of floor space while department B occupies 30 square metres.If rent for the whole factory totals $1000 per week and the total floor space taken up by the factory is 200 square metres,how much in rental costs must be allocated to Department B?

A) $150
B) $100
C) $400
D) $600

Answer 2

A

Question 3

All of the following statements about service department costs are true except:

A) Service department costs include the costs of providing services to other departments within an organisation.
B) Service department costs are only allocated to producing departments.
C) Service department costs should be allocated using an allocation base or cost driver related to the costs incurred.
D) Service department costs do not include the costs of providing services to external customers.

Answer 3

B

Question 4

What overhead driver might best relate to the total overhead cost of a Minerals extraction operating division of BHP Billiton,a large mining company?

A) Floor space
B) Inspection hours
C) Machine hours
D) Quality control time

Question 5

William runs an accounting firm,and predominantly incurs overhead costs that are proportional to the amount of effort put in by her staff members.More senior staff members generally perform more complex and cost intensive overhead related efforts.Which of the four drivers below would you consider best for allocating overhead costs?

A) Machine hours
B) Direct labour hours
C) Direct labour cost
D) Floor space

Question 6

Mary runs a florist store and predominantly incurs overhead costs that are proportional to the amount of effort put in by her staff members.These staff members generally receive the same pay rates.Which of the four drivers below would you consider best for allocating her overhead costs?

A) Machine hours
B) Direct labour hours
C) Direct labour cost
D) Floor space

Question 7

Brynne's Tenpin Bowling has two departments.Of these,Department Y occupies 40 labour hours of time per day while Department Z occupies 20 labour hours per day.If overhead costs are allocated on the basis of labour hours,how much in overhead should be allocated to Department Y if overheads are $2100 per fortnight?

A) $150
B) $100
C) $400
D) $600

Question 8

Rachael runs a cleaning service that relies on a high level of automation,and is less labour intensive than most other cleaning businesses.Which of the four drivers below would you consider best for allocating her overhead costs?

A) Machine hours
B) Direct labour hours
C) Direct labour cost
D) Floor space

Question 9

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} & \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \\& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \\\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \\\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \\\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.

-Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

A) $7200
B) $8400
C) $4800
D) $2400

Question 10

What overhead driver might best relate to the total overhead cost of Minerals Quality Control,a highly labour intensive operating division of BHP Billiton,a large mining company?

A) Floor space
B) Equipment values
C) Machine hours
D) Inspection hours

Question 11

What overhead driver might best relate to the total overhead cost of a human resources division of BHP Billiton,a large mining company?

A) Labour hours
B) Inspection hours
C) Machine hours
D) Quality control time

Question 12

Maximilian Cinemas has three departments.Of these,Department E occupies 55 machine hours of time per day while Department F occupies 25 machine hours per day.Department G occupies 20 machine hours.If overhead costs are allocated on the basis of machine hours,how much in overhead should be allocated to Department G if overheads are $10 500 per week?

A) $300
B) $100
C) $400
D) $600

Question 13

Danville Manufacturing
The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006.
$$\begin{array} { l c c c c } & \begin{array} { c } \text { Service } \\\text { Dept. 1 }\end{array} & \begin{array} { c } \text { Service } \\\text { Dept. 2 }\end{array} & \begin{array} { c } \text { Producing } \\\text { 1 }\end{array} & \begin{array} { c } \text { Producing } \\\mathbf { 2 }\end{array} \\\hline \text { Department Costs } & \$ 12000 & \$ 8000 & \$ 60000 & \$ 70000 \\\text { Number of Transactions } & 6000 & 4000 & 6000 & 14000 \\\text { Square Feet Occupied } & 2000 & 1000 & 4000 & 6000\end{array}$$

-Assuming that Danville Manufacturing Company uses the direct method of allocating service costs,the amount of service department 1 costs allocated to producing 1 would be: (If necessary,round your answer to the nearest whole number. )

A) $5143
B) $3000
C) $4800
D) $3600

Question 14

Danville Manufacturing
The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006.
$$\begin{array} { l c c c c } & \begin{array} { c } \text { Service } \\\text { Dept. 1 }\end{array} & \begin{array} { c } \text { Service } \\\text { Dept. 2 }\end{array} & \begin{array} { c } \text { Producing } \\\text { 1 }\end{array} & \begin{array} { c } \text { Producing } \\\mathbf { 2 }\end{array} \\\hline \text { Department Costs } & \$ 12000 & \$ 8000 & \$ 60000 & \$ 70000 \\\text { Number of Transactions } & 6000 & 4000 & 6000 & 14000 \\\text { Square Feet Occupied } & 2000 & 1000 & 4000 & 6000\end{array}$$

-Assuming that Danville Manufacturing Company uses the direct method of allocating service costs,the amount of service department 2 costs allocated to producing 2 would be:

A) $4000
B) $4364
C) $4800
D) $5600

Question 15

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} & \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \\& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \\\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \\\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \\\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.

-Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to service department 2 under the step method would be:

A) $ 0
B) $1600
C) $2000
D) $2400

Question 16

Danville Manufacturing
The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006.
$$\begin{array} { l c c c c } & \begin{array} { c } \text { Service } \\\text { Dept. 1 }\end{array} & \begin{array} { c } \text { Service } \\\text { Dept. 2 }\end{array} & \begin{array} { c } \text { Producing } \\\text { 1 }\end{array} & \begin{array} { c } \text { Producing } \\\mathbf { 2 }\end{array} \\\hline \text { Department Costs } & \$ 12000 & \$ 8000 & \$ 60000 & \$ 70000 \\\text { Number of Transactions } & 6000 & 4000 & 6000 & 14000 \\\text { Square Feet Occupied } & 2000 & 1000 & 4000 & 6000\end{array}$$

-Assuming that Danville Manufacturing Company allocates Service Department 1 costs first,the amount of Service Department 1 costs allocated to Service Department 2 under the step-down method would be:

A) $ 0
B) $1600
C) $2000
D) $2400

Question 17

Companies allocate service department costs to other departments for all of the following reasons except:

A) to improve decisions concerning how to use scarce resources.
B) to hold departments that consume the resources accountable for the services they consume.
C) to provide more accurate product cost information.
D) to determine what the salary of service department employees should be.

Question 18

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} & \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \\& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \\\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \\\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \\\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.

-Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to service department 2 under the direct method would be:

A) $ 0
B) $1600
C) $2000
D) $2400

Question 19

Janine Pty Limited wishes to allocate rent costs in her organisation.Which of the four drivers below would you consider best for allocating this cost?

A) Machine hours
B) Direct labour hours
C) Direct labour cost
D) Floor space

Question 20

Danville Manufacturing
The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006.
$$\begin{array} { l c c c c } & \begin{array} { c } \text { Service } \\\text { Dept. 1 }\end{array} & \begin{array} { c } \text { Service } \\\text { Dept. 2 }\end{array} & \begin{array} { c } \text { Producing } \\\text { 1 }\end{array} & \begin{array} { c } \text { Producing } \\\mathbf { 2 }\end{array} \\\hline \text { Department Costs } & \$ 12000 & \$ 8000 & \$ 60000 & \$ 70000 \\\text { Number of Transactions } & 6000 & 4000 & 6000 & 14000 \\\text { Square Feet Occupied } & 2000 & 1000 & 4000 & 6000\end{array}$$

-Assuming that Danville Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing 1 under the step-down method would be:

A) $3200
B) $4000
C) $3000
D) $2400

Question 21

What is the overhead allocated to a product that uses 4 direct labour hours in Assembly and 4 machine hours in Machinery?

A) $600
B) $0
C) $360
D) $960

Question 22

Motlop Manufacturing
The Motlop Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} &\text { Service }&\text { Service } & \text { Producing } & \text { Producing }\\&\text { Dept. 1 }&\text { Dept. 2 }&1&2\\\hline \text { Department Costs } & \$ 10000 & \$ 15000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 10000 & 5000 & 10000 & 20000 \\\text { Labour hours } & 5000 & 5000 & 12000 & 8000\end{array}$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and labour hours respectively. Service department 1 is allocated first.

-Assuming that Motlop Manufacturing Company uses the direct method for allocating service costs,the amount of service department 2 costs allocated to producing 2 would be:

A) $7500
B) $2500
C) $6000
D) $9000

Question 23

Mega Manufacturing
The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$$\begin{array} { l c c c c } &\text { Service } &\text { Service } & \text { Producing } & \text { Producing } \\&\text { Dept.1 }&\text { Dept.2 }&1&2\\\hline \text { Department Costs } & \$ 40000 & \$ 30000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 8000 & 4000 & 20000 & 16000 \\\text { Square Feet Occupied } & 3000 & 6000 & 9000 & 12000\end{array}$$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first.

-Assuming that Mega Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

A) $13 214
B) $14 571
C) $12 857
D) $15 974

Question 24

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} & \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \\& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \\\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \\\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \\\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.

-Assuming that Sharon Manufacturing Company uses the direct method of allocating service costs,the amount of service department 1 costs allocated to producing 1 would be: (If necessary,round your answer to the nearest whole number. )

A) $5250
B) $3000
C) $4800
D) $3333

Question 25

Motlop Manufacturing
The Motlop Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} &\text { Service }&\text { Service } & \text { Producing } & \text { Producing }\\&\text { Dept. 1 }&\text { Dept. 2 }&1&2\\\hline \text { Department Costs } & \$ 10000 & \$ 15000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 10000 & 5000 & 10000 & 20000 \\\text { Labour hours } & 5000 & 5000 & 12000 & 8000\end{array}$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and labour hours respectively. Service department 1 is allocated first.

-Assuming that Motlop Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

A) $7250
B) $9857
C) $6438
D) $2579

Question 26

What is the overhead allocated to a product if the company uses a plant wide rate based on direct labour hours and a product uses 4 direct labour hours?

A) $600
B) $300
C) $360
D) $960

Question 27

What is the overhead allocated to a product that uses 4 direct labour hours in Machinery and 4 machine hours in Assembly?

A) $240
B) $0
C) $360
D) $960

Question 28

Which of the following expenses is most likely to be a direct departmental overhead cost of a department in a factory?

A) Factory rent
B) Factory insurance
C) Equipment depreciation
D) Direct materials

Question 29

What is the overhead allocated to a product that uses 4 machine hours in both departments?

A) $1200
B) $600
C) $1500
D) $960

Question 30

Motlop Manufacturing
The Motlop Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} &\text { Service }&\text { Service } & \text { Producing } & \text { Producing }\\&\text { Dept. 1 }&\text { Dept. 2 }&1&2\\\hline \text { Department Costs } & \$ 10000 & \$ 15000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 10000 & 5000 & 10000 & 20000 \\\text { Labour hours } & 5000 & 5000 & 12000 & 8000\end{array}$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and labour hours respectively. Service department 1 is allocated first.

-Assuming that Motlop Manufacturing Company uses the direct method of allocating service costs,the amount of service department 1 costs allocated to producing 1 would be: (If necessary,round your answer to the nearest whole number. )

A) $5250
B) $3000
C) $4800
D) $3333

Question 31

Mega Manufacturing
The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$$\begin{array} { l c c c c } &\text { Service } &\text { Service } & \text { Producing } & \text { Producing } \\&\text { Dept.1 }&\text { Dept.2 }&1&2\\\hline \text { Department Costs } & \$ 40000 & \$ 30000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 8000 & 4000 & 20000 & 16000 \\\text { Square Feet Occupied } & 3000 & 6000 & 9000 & 12000\end{array}$$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first.

-Assuming that Mega Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to service department 2 under the direct method would be:

A) $ 0
B) $1600
C) $2000
D) $2400

Question 32

Mega Manufacturing
The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$$\begin{array} { l c c c c } &\text { Service } &\text { Service } & \text { Producing } & \text { Producing } \\&\text { Dept.1 }&\text { Dept.2 }&1&2\\\hline \text { Department Costs } & \$ 40000 & \$ 30000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 8000 & 4000 & 20000 & 16000 \\\text { Square Feet Occupied } & 3000 & 6000 & 9000 & 12000\end{array}$$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first.

-Assuming that Mega Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to service department 2 under the step method would be:

A) $ 0
B) $7273
C) $4000
D) $2438

Question 33

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} & \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \\& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \\\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \\\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \\\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.

-Assuming that Sharon Manufacturing Company uses the direct method of allocating service costs,the amount of service department 2 costs allocated to producing 2 would be:

A) $4000
B) $4364
C) $4800
D) $5600

Question 34

Motlop Manufacturing
The Motlop Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} &\text { Service }&\text { Service } & \text { Producing } & \text { Producing }\\&\text { Dept. 1 }&\text { Dept. 2 }&1&2\\\hline \text { Department Costs } & \$ 10000 & \$ 15000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 10000 & 5000 & 10000 & 20000 \\\text { Labour hours } & 5000 & 5000 & 12000 & 8000\end{array}$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and labour hours respectively. Service department 1 is allocated first.

-Assuming that Motlop Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to Producing 2 under the direct method would be:

A) $6667
B) $3333
C) $6500
D) $3500

Question 35

What is the overhead allocated to a product that uses 3 direct labour hours in Assembly and 5 machine hours in Machinery?

A) $960
B) $0
C) $1020
D) $900

Question 36

What is the overhead allocated to a product if the company uses a plantwide rate based on machine hours and a product uses 4 machine hours?

A) $600
B) $0
C) $360
D) $960

Question 37

What is the overhead allocated to a product that uses 4 direct labour hours in both departments?

A) $240
B) $600
C) $360
D) $840

Question 38

Motlop Manufacturing
The Motlop Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} &\text { Service }&\text { Service } & \text { Producing } & \text { Producing }\\&\text { Dept. 1 }&\text { Dept. 2 }&1&2\\\hline \text { Department Costs } & \$ 10000 & \$ 15000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 10000 & 5000 & 10000 & 20000 \\\text { Labour hours } & 5000 & 5000 & 12000 & 8000\end{array}$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and labour hours respectively. Service department 1 is allocated first.

-Assuming that Motlop Manufacturing Company allocates service department 1 costs first,the amount of service department 1 costs allocated to producing 2 under the step method would be:

A) $ 0
B) $1600
C) $5714
D) $2400

Question 39

Mega Manufacturing
The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$$\begin{array} { l c c c c } &\text { Service } &\text { Service } & \text { Producing } & \text { Producing } \\&\text { Dept.1 }&\text { Dept.2 }&1&2\\\hline \text { Department Costs } & \$ 40000 & \$ 30000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 8000 & 4000 & 20000 & 16000 \\\text { Square Feet Occupied } & 3000 & 6000 & 9000 & 12000\end{array}$$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first.

-Assuming that Mega Manufacturing Company uses the reciprocal method of allocating service costs,what is the total overhead that will be allocated from service department 1,adjusted for the reciprocal method?

A) $40 000
B) $43 750
C) $44 304
D) $45 000

Question 40

Mega Manufacturing
The Mega Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$$\begin{array} { l c c c c } &\text { Service } &\text { Service } & \text { Producing } & \text { Producing } \\&\text { Dept.1 }&\text { Dept.2 }&1&2\\\hline \text { Department Costs } & \$ 40000 & \$ 30000 & \$ 90000 & \$ 70000 \\\text { Machine hours } & 8000 & 4000 & 20000 & 16000 \\\text { Square Feet Occupied } & 3000 & 6000 & 9000 & 12000\end{array}$$
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Service department 1 is allocated first.

-Assuming that Mega Manufacturing Company uses the reciprocal method of allocating service costs,what is the total overhead that will be allocated from service department 2,adjusted for the reciprocal method?

A) $30 000
B) $34 430
C) $34 000
D) $31 238

Question 41

What are indirect departmental overhead costs? Please give two examples in your explanation.

Question 42

Melbourne Manufacturing has two production departments,Assembly and Finishing.The total overhead cost in Assembly is $200?000 and Finishing is $30?000.Assembly is driven by machine hours,and Finishing by labour hours.There are 6000 labour hours and 10?000 machine hours in Assembly,while there are 7500 labour hours and 6000 machine hours in Finishing.
Required:
A.What is the overhead rate per unit for Assembly,and for Finishing?
B.How much overhead is applied to a product that uses 3 labour hours in Assembly and 2 labour hours in Finishing,as well as 3 machine hours in Assembly and 4 machine hours in Finishing?

Question 43

What is the step-down method? What assumptions are necessary to make it relevant?

Question 44

Townsville Manufacturing has the following overhead costs in their four departments.Quality Control and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $40 000 in Quality Control overheads,$70 000 in Maintenance overheads,$80 000 in Mixing overheads and $100 000 in Fabricating overheads.
$\begin{array}{lllrr}&\text { Quality control }& \text {Maintenance}&\text { Mixing}&\text { Fabricating }\\\text { Inspections } & 20 & 100 &125 & 125 \\\text { Machine hours } & 100 & 30 & 200 &300\end{array}$

Quality Control overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the step-down method to allocate overhead costs to the production departments.The Quality Control department is allocated first.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?

Question 45

Which of the following expenses is most likely to be an indirect departmental overhead cost of a department in a factory?

A) Factory rent
B) Assembly labour costs
C) Equipment depreciation
D) Direct materials

Question 46

Adelaide Manufacturing has the following overhead costs in their four departments.HR and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $10 000 in HR overheads,$20 000 in Maintenance overheads,$30 000 in Mixing overheads and $40 000 in Fabricating overheads.
$\begin{array}{lllrr}&\text { HR}& \text {Maintenance}&\text { Mixing}&\text { Fabricating }\\\text { Employees } & 20 & 60 & 50 & 150 \\\text { Machine hours } & 10 & 30 & 200 & 300\end{array}$

HR overheads are allocated to production departments using number of employees,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the direct method to allocate overhead costs to the production departments.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?

Question 47

What is the reciprocal method? What assumptions are necessary to make it relevant?

Question 48

Tasmania Manufacturing has the following overhead costs in their four departments.Quality Control and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $20 000 in Quality Control overheads,$50 000 in Maintenance overheads,$60 000 in Mixing overheads and $80 000 in Fabricating overheads.
$\begin{array}{lllrr}&\text { Quality control }& \text {Maintenance}&\text { Mixing}&\text { Fabricating }\\\text { Inspections } & 20 & 50 & 50 & 150 \\\text { Machine hours } & 100 & 30 & 200 & 400\end{array}$

Quality Control overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the reciprocal method to allocate overhead costs to the production departments.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?

Question 49

How are departmental overhead rates superior to plantwide overhead rates?

Question 50

Why do we have to allocate overhead costs from service departments to production departments?

Question 51

The Sandal Factory manufactures synthetic sandals for the younger market.The company is interested in apportioning the following three costs to four departments.These costs are rent ($500?000),depreciation ($25?000)and insurance ($45?000).Rent is driven by floor space,depreciation by machine hours and insurance by value of equipment.Following is the floor space,machine hours and equipment values for the four departments (HR,Quality control,Machining and Assembly):
$\begin{array}{lrrrr}&\text { HR}&\text {Quality}& \text {Machining }& \text { Assembly}\\&&\text {Control}\\ \text { Floor space }(\mathrm{sq} \cdot \mathrm{m}) & 600 & 400 & 800 & 1600 \\\text { Machine hours } & 700 & 300 & 2300 & 1100 \\\text { Equipment values }& \$ 7100 & \$ 3100 & \$ 1200 & \$ 2000\end{array}$

Required:
A.How much of each overhead cost is allocated to the four departments?
B.What is the total overhead in each department?

Question 52

Hobart Manufacturing has the following overhead costs in their four departments.Inspection and Tech Support are the service departments,while Mixing and Fabricating are the production departments.There is currently $20 000 in Inspection overheads,$35 000 in Tech Support overheads,$70 000 in Mixing overheads and $80 000 in Fabricating overheads.
$\begin{array}{lllrr}&\text { HR }& \text {Maintenance}&\text { Mixing}&\text { Fabricating }\\\text { Inspections } & 30 & 100 &120 & 80 \\\text { Machine hours } & 200 & 30 & 350 & 150\end{array}$

Inspection overheads are allocated to production departments using number of inspections,while Tech Support overheads are allocated to production departments using support hours.The company has decided to use the direct method to allocate overhead costs to the production departments.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?

Question 53

What is the direct method? What assumptions are necessary to make it relevant?

Question 54

What are the two types of departments assumed to exist in departmental overhead costing?

Question 55

What are direct departmental overhead costs? Please give two examples in your explanation.

Question 56

When might the plantwide overhead rate be equally effective as departmental overhead rates?

Question 57

Shell Harbour Productions has two production departments,Assembly and Finishing.The total overhead cost in Assembly is $450?000 and Finishing is $25?000.Assembly is driven by machine hours,and Finishing by labour hours.There are 4000 labour hours and 15?000 machine hours in Assembly,while there are 5000 labour hours and 8000 machine hours in Finishing.
Required:
A.What is the overhead rate per unit for Assembly,and for Finishing?
B.How much overhead is applied to a product that uses 3 labour hours in Assembly and 7 labour hours in Finishing,as well as 9 machine hours in Assembly and 4 machine hours in Finishing?

Question 58

Mudgee Manufacturing has two production departments,Mixing and Finishing.The total overhead cost in Mixing is $100?000 and Finishing is $60?000.Mixing is driven by machine hours,and Finishing by labour hours.There are 7000 labour hours and 20?000 machine hours in Mixing,while there are 10?000 labour hours and 15?000 machine hours in Finishing.
Required:
A.What is the overhead rate per unit for Mixing,and for Finishing?
B.How much overhead is applied to a product that uses 5 labour hours in Mixing and 6 labour hours in Finishing,as well as 7 machine hours in Mixing and 8 machine hours in Finishing?
C.Following on from part b,how much overhead would have been applied to the product if a plantwide overhead rate based on machine hours had been used?

Question 59

The reciprocal method is superior to the step-down method and direct method.To what extent do you agree or disagree with this statement? Please explain your answer.

Question 60

Perth Manufacturing has the following overhead costs in their four departments.Quality Control and Maintenance are the service departments,while Mixing and Fabricating are the production departments.There is currently $20 000 in Quality Control overheads,$56 000 in Maintenance overheads,$60 000 in Mixing overheads and $80 000 in Fabricating overheads.
$\begin{array}{lllrr}&\text { Quality control }& \text {Maintenance}&\text { Mixing}&\text { Fabricating }\\\text { Inspections } & 20 & 50 & 50 & 150 \\\text { Machine hours } & 100 & 30 & 200 & 400\end{array}$

Quality Control overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the step-down method to allocate overhead costs to the production departments.The Quality Control department is allocated first.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?

Question 61

Barossa Manufacturing has the following overhead costs in their four departments.Inspection and Maintenance are the service departments,while Assembly and Finishing are the production departments.There is currently $30 000 in Inspection overheads,$60 000 in Maintenance overheads,$70 000 in Assembly overheads and $90 000 in Finishing overheads.
$\begin{array}{lllrr}&\text { Inspection}&\text { Maintenance } & \text { Assembly }& \text { Finishing }\\\text { Inspections } & 20 & 200 &400 & 300 \\\text { Machine hours } & 100 & 30 & 150 & 250\end{array}$


Inspection overheads are allocated to production departments using the number of inspections,while Maintenance overheads are allocated to production departments using machine hours.The company has decided to use the reciprocal method to allocate overhead costs to the production departments.
Required:
A.How much overhead is allocated to the production departments from the service departments?
B.What is the total overhead in the production departments after the re-allocation?