1) A construction company has 5 projects. The contract amount of each project is
ID: 2422443 • Letter: 1
Question
1) A construction company has 5 projects. The contract amount of each project is as follows: Project 1: $1,000,000 Project 2: $2,000,000 Project 3: $1,500,000 Project 4: $1,200,000 Project 5: $ 800,000 The total overhead of this company is $120,000. Determine the overhead allocated to each of the projects if the contract amount is the allocation base. (20 points)
2) The controller decides to interview key managers of the Manufacturing, Design, and Quality departments.
The results are:
54000
Details regarding the usage of cost drivers for 3 contracts are:
Department Cost driver A B C
Manufacturing Machine hours 560 450 290
Design Number of Drawing Sheet 80 70 100
Quality Number of Inspection 160 155 190
- What is the overhead cost rate for each department? (10 points)
- What is overhead costs allocated to each contract? (10 points)
Department overhead costdriver manufacturing 100000 machine hours design54000
No. of drawing sheet quality 120000 No. of inspectionExplanation / Answer
1.) Calculation of overhead costs allocated to each contract:
Total overhead costs of this company = $120,000
The contract amount from all projects = $ 1,000,000 + 2,000,000+ 1,500,000+ 1,200,000+800,000
= $6,500,000
Now, Overhead costs allocated to each project:
Project 1 = Contract from Project 1 * Total overhead costs/ Total contract amount of all projects
= 1,000,000 * 120,000/6,500,000 = $18,462
Project 2 = 2,000,000 * 120,000/6,500,000 = $36,923
Project 3 = 1,500,000* 120,000/6,500,000 = $27,692
Project 4 = 1,200,000* 120,000/6,500,000 = $22,154
Project 5 = 800,000* 120,000/6,500,000 = $14,769
2.) Calculation of overhead costs rate department wise:
Department Overhead cost
Manufacturing = overhead costs/ Total machine hours = 100000/ (560+450+290) = $76.92 per machine hr
Design = overhead costs/ Total drawing sheets = 54,000/ (80+70+100) = $216 per drawing sheet
Quality = overhead costs / Total inspections = 120,000/ (160+155+190) = $237.62 per Inspection
Calculation of overhead costs allocated to each contract:
Contract Manufacturing Design Quality Total
A 43,077 17,280 38,020 98,377
( 560 * 76.92) (80 * 216) (237.62 * 160)
B 34,615 15,120 36832 86,657
( 450 * 76.92) (70 * 216) (237.62 * 155)
C 22,308 21,600 45,148 89,056
( 290 * 76.92) (100 * 216) ( 237.62 * 190)
100,000 54,000 120,000
Note: All figures are rounded off.
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