Background information for all problems: Chekley Manufacturing has two productio
ID: 341637 • Letter: B
Question
Background information for all problems:
Chekley Manufacturing has two production departments (Machining and Assembly). They have two service departments that provide services to each other and to production (Plant Maintenance and IT) Chekley believes Plant Maintenance (PM) should be allocated based on square footage and IT should be allocated based on computer hours. Chekley allocates Plant Maintenance first when allocating using the step method. You have the following additional information:
Total manufacturing costs
COSTS Plant maintenance $500,000
Information systems $450,000
Machining $2,000,000
Assembly $3,150,000 $6,100,000
Square Feet Computer hours
Plant maintenance 4,000.00 8,000.00
Information systems 2,000.00 4,000.00
Machining 12,000.00 24,000.00
Assembly 6,000.00 8,000.00
24,000.00 44,000.00
Problem A
1. Under the direct method, what percentage of PM should be allocated to Machining? 2. Under the direct method, what percentage of PM should be allocated to Assembly? 3. Under the direct method, how much of the total allocable cost attributable to PM should be allocated to Machining? 4. Under the direct method, how much of the total allocable cost attributable to PM should be allocated to Assembly? 5. Under the direct method, what percentage of IT should be allocated to Machining? 6. Under the direct method, what percentage of IT should be allocated to Assembly? 7. Under the direct method, how much of the total allocable cost attributable to IT should be allocated to Machining? 8. Under the direct method, how much of the total allocable cost attributable to IT should be allocated to Assembly? Problem B 1. Under the step method, what percentage of PM should be allocated to IT? 2. Under the step method, what percentage of PM should be allocated to Machining? 3. Under the step method, what percentage of PM should be allocated to Assembly? 4. Under the step method, how much of the total allocable cost attributable to PM should be allocated to IT? 5. Under the step method, how much of the total allocable cost attributable to PM should be allocated to Machining? 6. Under the step method, how much of the total allocable cost attributable to PM should be allocated to Assembly? 7. Under the step method, what percentage of IT should be allocated to PM? 8. Under the step method, what percentage of IT should be allocated to Machining? 9. Under the step method, what percentage of IT should be allocated to Assembly? 10. Under the step method, how much of the total allocable cost attributable to IT should be allocated to PM? 11. Under the step method, how much of the total allocable cost attributable to IT should be allocated to Machining? 12. Under the step method, how much of the total MOH cost attributable to IT should be allocated to Assembly?
Problem C
1. Using the reciprocal method, what is the formula for determining the total PM costs that should be allocated? PM = 500,000 + .2IT PM = 500,000 + .2(450,000) PM = 450,000 + .1IT PM = 500,000 + .1(450,000) 2. Using the reciprocal method, what is the formula for determining the total IT costs that should be allocated? IT =500,000 + .1PM IT = 450,000 + .1PM IT = 450,000 + .2(500,000) IT = 500,000 + .1(450,000) 3. Using the reciprocal method, how much in total will be allocated from PM to the other departments? 4. Using the reciprocal method, how much in total will be allocated from IT to the other departments?
Explanation / Answer
PROBLEM A 1 to 4 Allocation of Plant Maintenance Cost: Direct Method Square Feet % Amount Machining 12,000 67% 3,33,333 Assembly 6,000 33% 1,66,667 Total 18,000 100% 5,00,000 Rate per Sq. Ft. = 500000 / 18000 = $ 27.78 per sq. ft. 5 to 8 Allocation of Information Systems Cost: Direct Method Computer Hours % Amount Machining 24,000 75% 3,37,500 Assembly 8,000 25% 1,12,500 Total 32,000 100% 4,50,000 Rate per Hour = 450000 / 32000 = $ 14.06 per Hour PROBLEM B 1 to 6 Basic Allocation of Plant Maintenance Cost: Step Method Square Feet % Amount IS 2,000 10% 50,000 Machining 12,000 60% 3,00,000 Assembly 6,000 30% 1,50,000 Total 20,000 100% 5,00,000 Rate per Sq. Ft. = 500000 / 20000 = $ 25 per sq. ft. 7 to 11 Basic Allocation of Plant Maintenance Cost: Step Method Total IS Cost = Basic Cost + Allocation of PM Cost = 450000 + 50000 = 500000 Computer Hours % Amount Machining 24,000 75% 3,75,000 Assembly 8,000 25% 1,25,000 Total 32,000 100% 5,00,000 Rate per Hour = 500000 / 32000 = $ 15.625 per Hour PROBLEM C 1 & 2 Basic Allocation of Plant Maintenance Cost: Reciprocal Method Square Feet % Amount IS 2,000 10% 50,000 Machining 12,000 60% 3,00,000 Assembly 6,000 30% 1,50,000 Total 20,000 100% 5,00,000 Rate per Sq. Ft. = 500000 / 20000 = $ 25 per sq. ft. Basic Allocation of Plant Maintenance Cost: Reciprocal Method Total IS Cost = Basic Cost + Allocation of PM Cost = 450000 + 50000 = 500000 Computer Hours % Amount PM 8,000 20% 1,00,000 Machining 24,000 60% 3,00,000 Assembly 8,000 20% 1,00,000 Total 40,000 100% 5,00,000 Rate per Hour = 500000 / 40000 = $ 12.5 per Hour Re-allocation of PM Cost of 100000: Square Feet % Amount IS 2,000 10% 10,000 Machining 12,000 60% 60,000 Assembly 6,000 30% 30,000 Total 20,000 100% 1,00,000 Rate per Sq. Ft. = 100000 / 20000 = $ 5 per sq. ft. Re-allocation of IS Cost of 10000: Computer Hours % Amount PM 8,000 20% 2,000 Machining 24,000 60% 6,000 Assembly 8,000 20% 2,000 Total 40,000 100% 10,000 Rate per Hour = 10000 / 40000 = $ 0.25 per Hour Re-allocation of PM Cost of 2000: Square Feet % Amount IS 2,000 10% 200 Machining 12,000 60% 1,200 Assembly 6,000 30% 600 Total 20,000 100% 2,000 Rate per Sq. Ft. = 2000 / 20000 = $ 0.1 per sq. ft. Re-allocation of IS Cost of 200: Computer Hours % Amount Machining 24,000 75% 150 Assembly 8,000 25% 50 Total 32,000 100% 200 Rate per Hour = 200 / 32000 = $ 0.00625 per Hour
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