Hackers Corp
Subject:AccountingPrice:3.86 Bought14
Hackers Corp. accumulated the following information for its products. A and B,
Product A Product B Total
Production volume 2, 000 1, 000
Total direct labor hours 5, 000 20, 000 25, 000
Setup cost per bath P 1, 000 P 2, 000
Bath size 100 50
Total set-up cost incurred P20, 000 P 40,000 P60, 000
Direct labor hour per unit 2 1
A traditional costing system would allocate set-up costs on the basis of direct labor hours. An ABC system would trace costs by spreading the cost per batch over the units in a batch.
1. What is the set-up cost per unit of Product A under each costing system?
Traditional ABC System
a. P4.80 P10.00
b. 2.40 10.00
c. 40.00 200.00
d. 4.8 20.00
A summary of the usage of the service department services by other service departments as well as by the two producing departments is as follows:
Equipment Building Production Dept.
Serving Cost Center Supervision Maintenance Occupancy Dept. 1 Dept.2
Supervision 0 10% 5% 40% 45%
Equinpment maint. 0 0 0 45% 55%
Building occunpanny 10% 10% 0 35% 45%
Direct costs in the varius deprtments are as follows:
Department Direct Cost Label
Supervision P 35,000 S1
Equipment maintenance 30,000 S2
Building occupancy 90,000 S3
Product Dept .No. 1 350,000 P1
2. If the direct method of allocation is used, how much of the supervision department's cost would be allocated to the building occupancy department?
(Start with Building occupancy, then Supervision)
a. 0
b. P 1, 750
c. P 3, 500
d. P 5, 250
3. If the direct method of allocation is used, how much of the equipment maintenance costs would be allocated to production department No. 1?
a. 0
b. P 13, 500
c. P 16, 500
d. P 30, 000
4. If the step method of allocation is used, how much would be allocated from supervision to production department No. 1
a. P 14, 000
b. P 16, 471
c. P 17, 600
d. P 18, 500
5. If the step method of allocation is used, how much would be allocated from supervision to building occupancy?
a. 0
b. P 1, 750
c. P 2, 200
d. P 2, 444
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Question - (1) .......... option - (a) 4.8 , 10
Question - (2) .......... Option - (a) 0
Question - (3) .......... Option - (b) 13500
Question - (4) ...........Option - (c) 17600
Question - (5) ......... Option - (a) 0
Step-by-step explanation
Question - (1)
Using traditional method - Overhead recovery rate = Total set-up cost / Total direct labor
= 60000 / 25000 = 2.4 per hour
Hence Set - up cost per unit = 2 hours * 2.4 = 4.8
Using ABC system - Setup cost per batch = 1000 ( given)
Number of units per batch = 100
Cost per Unit = 1000 / 100 = 10
Thus ....... Correct option = 4.8 , 10
Question - (2) Under direct method - cost of one service department will not be allocated to another service department. Hence, correct answer = 0 ( option - a )
Question - (3) Equipment maintenance cost = 30000
Service rendered by Equipment maintenance to Prod Dep 1 = 45%
Hence cost allocation = 30000 * 0.45 = 13500 ( option - b )
Question - (4)
Under step method, Building occupancy will be shared first and then Supervision ( given in instructions)
So, Building occupancy share to supervision = 90000*10% = 9000
Now, Supervision total cost = 35000 + 9000 = 44000
Supervision to production Dep 1 = 40% service
Hence cost allocation = 44000 * 0.4 = 17600
Question - (5) Under step method, building occupancy will be shared first.
Then it is completely ignored for any further sharing by other service departments.
Hence the question of allocating cost from supervision to building occupancy does not arise.
Hence correct answer = 0 ( Option - a )
