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Category > Management Posted 30 Dec 2017 My Price 10.00

Main Street Ice Cream Company

Plantwide versus Department Allocation

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow:

 

Strawberry

Vanilla

Chocolate

Direct labor (per 1,000 gallons)

$750

$825

$1,125

Raw materials (per 1,000 gallons)

800

500

600

Required

a. If the number of hours of labor per 1,000 gallons is 50 for strawberry, 55 for vanilla, and 75 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

b. Charlene’s department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered:

 

Department SV

Department C

Overhead

$105,840

$23,760

Machine-hours

25,200

36,000

Labor-hours

25,200

18,000

Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each.

c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement ( b ) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 50; vanilla, 55; and chocolate, 150. Direct labor hours by product remain the same as in requirement a.

d. Was Charlene correct in her belief? What happened to the cost of chocolate when the department allocation was used? Which costing method provides more accurate product costs?

Answers

Maurice Tutor
(5)
Status NEW Posted 30 Dec 2017 10:12 PM My Price 10.00

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