Unformatted text preview: Budgeted OH in P2 / Budgeted DLHs
Unit product B cost = DL + DM +MOH (MOH= MOHP1 +MOHP2) =
= 2 Q2. The Smith Company has 4 departments in is factory:
Three service departments S1, S2 and S3;
Two production departments P1 and P2 (each produce single product).
The budgeted costs of these departments are:
S1: $40,000 S2: $20,000 S3: $20,000 P1: $80,000 P2: $40,000
The consumption of services is given in the following table:
by Service provide to
S1 S2 S2
S3 P2 45% 20% 10% 30%
10% P1 35% S1 S3 35%
30% Allocate service department costs to the production departments using the:
i) Direct method
ii) Step-down method
iii) Reciprocal method
i) Direct method S1 S2 S3 P1 P2 Initial distribution 40,000 20,000 20,000 80,000 40,000 Reallocate S1 Reallocate S2 Reallocate S3 3 ii) Step down method
Order of allocation:
Rule 1: firstly allocate the support department which provides services to the
highest number of other support departments.
Rule 2: If they are equal, allocate the support department with the highest
overhead costs first.
Rule 3: Once a support department’s costs have been allocated you do not
allocate costs back to that department. Initial distribution S1
40,000 Reallocate Reallocate Reallocate iii) Reciprocal method
Equation 1: S1=
Equation 2: S2=
Equation 3: S3= S1 S2 S3 P1 P2 Initial distribution 40,000 20,000 20,000 80,000 40,000 Reallocate S1
Reallocate S3 4...
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- Spring '12