Question: Zhao Manufacturing Comapany has two departments, machining and finishing. For a given period the following costs were incurred by the company as a whole: direct material, $200,000; direct labor, $75,000; and indirect production, $80,000. The grand total was $355,000.
The machining department incurred 70% of the direct material costs, but only 33 1/3% of the direct labor costs. As in commonplace, indirect production costs incurred by each department were allocated to products in proportion to the direct-labor costs of products within the departments. Three products were producded.
| Product |
|
|
|
Direct Material |
Direct Labor |
| Sigma |
|
|
|
40% |
|
30% |
| Chi |
|
|
|
30% |
|
30% |
| Delta |
|
|
|
30% |
|
40% |
| Total for the machining department |
|
100% |
|
100% |
|
|
|
|
|
|
|
| Sigma |
|
|
|
33.33% |
|
40% |
| Chi |
|
|
|
33.33% |
|
40% |
| Delta |
|
|
|
33.33% |
|
20% |
| Total for the finishing department |
|
100% |
|
100% |
The indirect production costs incurred by the machining and finishing departments and allocated to all products therein amounted to machining, $38,000 and finishing, $42,000.
Problem 1. Compute the total costs incurred by the machining department and added by the finishing department.
Problem 2. Compute the total costs of each product that would be show as finished-goods inventory if all the products were transferred to finished stock on completion. (There were no beginning inventories.)