{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

We always seem to bid too high on jobs that require a

Info icon This preview shows pages 3–4. Sign up to view the full content.

View Full Document Right Arrow Icon
“I can’t understand what’s happening here,” said Mike Holt, president of Severson Products, Inc. “We always seem to bid too high on jobs that require a lot of labor time in the Finishing Department, and we always seem to get every job we bid on that requires a lot of machine time in the Milling Department. Yet we don’t seem to be making much money on those Milling Department jobs. I wonder if the problem is in our overhead rates.” In addition to the Milling and Finishing departments, the company has three service departments. The costs of these service departments are allocated to other departments in the order listed below. (For each service department, use the most appropriate allocation base.) Total Square Feet Number of Machine- Direct Labor-Hours of Space Employees Hours Labor- Occupied Hours $ 340,000 * 65,500 93,600 417,000 163,000 $ 1,079,100 *This represents the amount of cost subsidized by the company. Required: 1 Cafeteria Custodial Machinery Milling Finishing Services Maintenance 2 Cafeteria Custodial Machinery Milling Finishing Services Maintenance 3 Assume that during the current year the company bids on a job that requires machine and labor time as follows: Machine-Hours Direct Labor-Hours a. b. Severson Products manufactures high-quality wood products to customers’ specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand finishing work in the Finishing Department. Cafeteria 16,500 12,800 28 Custodial Services 8,500 3,600 42 Machinery Maintenance 14,900 10,100 60 Milling 30,500 40,600 106 168,000 17,000 Finishing 105,000 20,300 310 50,000 71,000 175,400 87,400 546 218,000 88,000 Budgeted overhead costs in each department for the current year are as follows: Cafeteria Custodial Services Machinery Maintenance Milling Finishing Total budgeted cost Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Using the step-down method, allocate service department costs to the consuming departments. Then compute predetermined overhead rates in the operating departments for the current year using machine-hours as the allocation base in the Milling Department and direct labor-hours as the allocation base in the Finishing Department.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern