The Gleason Company, a division of a large international company, has two production departments, Machining and Assembly, and two support departments, namely, Factory Administration and Cafeteria. The estimated building and grounds costs for the coming year would be $41,010. The following are the cost estimates for next year that can be traced to each department: Direct costs $ Factory Administration 78,270 Cafeteria 4,920 Machining 104,100 Assembly 146,700 $ 333,990 Company management would like to know the estimated total allocated product cost per unit. These costs will be used as a benchmark for future period operations. The following information is available and can be used as a possible allocation base. The difference between direct labour hours and total labour hours represents hours of supervisory labour or labour hours that are used indirectly for manufacturing. The cost of these hours in machining and assembly is part of manufacturing overhead. Department Direct labour hours Number of employees Square metres Total labour hours Number of purchase orders Factory Administration 2 500 500 Cafeteria 1,000 2 1,000 1,000 4,000 Machining 3,000 4 3,500 8,000 2,000 Assembly 6,000 5 5,000 10,000 1,000 Total 10,000 13 10,000 19,000 7,500 Required: Show all your workings. Round allocation ratios (i.e. relative proportion of the support department’s services consumed by the user’s department) and overhead rates to 4 decimal places, and cost to the nearest dollar.
I. Allocate the building and grounds costs to all other departments using the allocation base of square metres. Add the allocated costs to the direct cost of each department to arrive at the total costs assigned to each department.
II. Assume the company uses number of purchase orders as an allocation base for Factory Administration, and direct labour hours as an allocation base for Cafeteria, calculate the support department costs allocated to each production department using the direct method.
III. Assume the company uses number of employees as an allocation base for both support departments, calculate the support department costs allocated to each production department using the step-down method, and then calculate an overhead rate per direct labour hour for each production department. Assume the Factory Administration cost is allocated first.
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