Dodson Company uses a job-order costing system to compute product costs. There a

Question

Dodson Company uses a job-order costing system to compute product costs. There are two producing departments (P1 and P2) and two support departments (S1 and S2). The costs incurred in support departments S1 and S2 are allocated to producing departments P1 and P2 and included in their factory overhead rates for costing jobs. S1 costs are allocated based on the number of employees while S2 costs are allocated based on direct labor hours. The production departments overhead rates are also computed based on direct labor hours. The data below are available for February 2018: S1 S2 P1 P2 $1,200,000$1,800,000$7,000,000$11,750,000 Direct department costs Number of emplovees Direct labor hours 13 325 48 2,250 72 1,800 450 Required: 1. Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method. The department with the greatest percentage of interdepartmental services should be allocated first (15 points) 2. Determine the departmental rates per direct labor hour for P1 and P2 (round to the closest whole number): 10 points 3. Job A2 was ordered and completed during February at a prime cost of S2,600,000. In addition, this job required 250 direct labor hours in Department P1 and 100 direct labor hours in Department P2. What was the total cost of Job A2? 15 points 4. Assume that the company's policy is to price a job at 150% of cost, compute the bid price of Job A2 to be proposed to the customer (10 points)

Explanation / Answer

1.

Percentage of interdepartmental services:

S1 service provided to S2 = 13/(13 + 48 + 72) = 13/133 = 9.77%

S2 service provided to S1 = 450/(450 + 2250 + 1800) = 450/4500 = 10%

S2 is allocated first.

2. Departmental rates per direct labor hour:

P1: $8452000/2250 = $3756

P2: $13298000/1800 = $7388

3.

4. Bid price of Job A2 = $4277800 x 150% = $6416700

Step-down Method Support Departments Production Departments S1 S2 P1 P2 Direct department costs before interdepartment cost allocations 1200000 1800000 7000000 11750000 Allocation of S2 costs 180000 -1800000 900000 720000 Allocation of S1 costs -1380000 0 552000 828000 Total budgeted overhead of operating departments $ 0 0 8452000 13298000

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