(b) absorptiontu 4. Which costing method, variablé Ur u Explain. ses Support dep

Question

(b) absorptiontu 4. Which costing method, variablé Ur u Explain. ses Support department cost allocation; plantwide versus departmental overhead rates; product costing cost drivers: manufacturer Rising Fast Pty Ltd manufactures a complete line of fibreglass attaché cases and suitcases. The firm has three manufacturing departments: moulding, component and assembly. There are also two support departments: power and maintenance. The sides of the cases are manufactured in the moulding department. The frames, hinges and locks are manufactured in the component department. The cases are pleted in the assembly department. Varying amounts of materials and time are required to manufacture each type of case. Rising Fast has always used a plantwide overhead rate. Direct labour hours are used to assign overhead to products. The predetermined overhead rate is calculated by dividing the company's total estimated overhe by the total estimated direct labour hours to be worked in the three manufacturing departments. ad Liam Bolt, manager of cost accounting, has recommended that Rising Fas rates. Th t use departmental overhead e planned operating costs and expected levels of activity for the coming year have been developed oit and are presented by department in the following schedules. (All numbers are in thousands.)

Explanation / Answer

1 (a) Plantwise overhead rate Estimated overehead/Direct labor hours (21000+16200+22600+18400+4000)/(500+2000+1500) 20.55 1 (b) Total Labor hour for Elite 4+3+2=9 Hour per case Overhead per hour 20.55 Overhead Per Elite Case 9*20.55=184.95 2(a) Total Maintenance Cost Moulding Component Assembly Allocation Activity for Maintenance department 18400 90 25 10 (90:25:10) 18400/125*90 and 25 and 10 13248 3680 1472 2(b) Total Power Cost Moulding Component Assembly Allocation Activity for Power department 4000 360 320 120 360:320:120 1800 1600 600 2© Moulding Component Assembly Manufacturing Overhead 21000 16200 22600 Allocated: From Maintenance 13248 3680 1472 From Power 1800 1600 600 Total Overhead (A) 36048 21480 24672 activity (Machin hour for Moulding and labor for other) (B) 875 2000 1500 Department Overhead Rate A/B 41.20 10.74 16.45 3 Moulding Component Assembly Machine Hour needed for Elite Case 5 Labor Hour needed for Elite Case 3 2 Department Overhead Rate A/B 41.20 10.74 16.45 Cost of Elite (Hour*Rate) 205.99 32.22 32.90

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