QUESTION - Chomyn Corporation provides a variety of research services to a diverse range of clients. The company has three support departments and two operating departments whose cost details for a typical quarter are presented below.
|
Support Departments
|
|
|
Information Systems
|
$268,000
|
|
Administration
|
347,000
|
|
Legal
|
192,000
|
|
Operating Departments
|
|
|
Research
|
822,000
|
|
Preparation
|
590,000
|
|
|
$2,219,000
|
The existing cost allocation system is designed as follows:
(1) Support department costs are allocated to the two operating departments, and
(2) Operating department costs are then allocated to individual jobs.
The support department costs are allocated to the Research and preparation departments as follows:
(1) Information Systems Department costs are allocated using a 60:40 ratio,
(2) Administration Department costs are allocated using a 30:70 ratio, and
(3) Legal Department costs are allocated using a 50:50 ratio
The company computes separate pre-determined overhead allocation rates for each operating department using the professional labour hours in each department as the allocation base. The Research and Preparation departments estimated 9,000 and 7,500 professional labour hours, respectively, for the quarter.
Required -
1. Compute the predetermined overhead allocation rates for each operating department.
2. Using the rates computed in #1 above assign the overhead costs to Job L123 and L342. The two jobs consumed:
- 340 and 480 research professional labour hours respectively, and
- 600 and 750 preparation professional labour hours respectively
3. You have recently learnt about activity-based costing and decide to use five activity cost pools, one for each department. The additional information you have collected is as follows:
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Activity cost pool
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Cost driver (Allocation base)
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Quantity of allocation base
|
|
Information Systems
|
IS time
|
14,970 hours
|
|
Administration
|
Number of consultants
|
40
|
|
Legal
|
Sales value
|
$8,000,000
|
|
Research
|
Professional labour hours
|
9,000 hours
|
|
Preparation
|
Professional labour hours
|
7,500 hours
|
Compute the pre-determined allocation rates for each activity cost pool.
4. In addition to the professional research and preparation labour hours specified in #2 for jobs L123 and L342, they consume the following additional resources:
|
Resource
|
Job L123
|
Job L342
|
|
IS time
|
350
|
150
|
|
Number of consultants
|
2
|
2
|
|
Sales value
|
$1,350,000
|
$900,000
|
Using the allocated rates computed in #3 above assign the overhead costs to the two jobs.
5. Assume that the professional labour in the Research and Preparation departments are paid at the rate of $32 and $28, respectively, per hour. Assume also that jobs L123 and L342 consumed other direct resources worth $24,250 and $9,860, respectively. Compute the TOTAL COST of each job. Prepare the appropriate journal entry to record the completion of the jobs (use Cost of Jobs Completed instead of Finished Goods as the account name).