MANAGEMENT MANAGEMENT ACCOUNTING CASE ASSIGNMENT 1 DSL Music Video is a music video production company. DSL has five departments, each with its own manager. Two of the departments (rock/pop and country) produce and promote revenue generating products (music videos). The other three departments supply internal services that support video production. Administrations activities include accounting, personnel, finance and contract negotiation. Facilitys activities include managing the physical plant, studios and equipment. Finally recordings activities include coordinating the production staff, scheduling artists and arranging sets. The rock/pop and country production centers make saleable goods and services. The service centers supply products and services that are consumed internally by other responsibility centers. In addition, the service centers may also support other service centers. The company allocates cost to the production centers for two purposes: (1) to determine the cost to produce and market its services and (2) to encourage department managers to monitor each others costs; that is, cross-departmental monitoring. The following is the income statement for DSL. DSL Music Video Income Statement Revenue 650,000 Operating Costs: Direct labor Direct materials Purchased services Depreciation & amortization Other operating costs Total operating cost 220,000 35,000 110,000 80,000 55,000 500,000 Operating Income 150,000 A summary of operating costs are shown below: Resource Direct labor Direct materials Purchased services Depreciation & amortization Other operating costs Total operating cost DSL Music Video Operating Costs Service Department Production Center Admin Facility Recording Pop/Rock Country 24,000 15,000 37,000 84,000 60,000 20,000 15,000 18,000 30,000 62,000 3,000 35,000 3,000 16,000 23,000 55,000 100,000 50,000 40,000 150,000 160,000 1 Total 220,000 35,000 110,000 80,000 55,000 500,000 MANAGEMENT Assume that the allocation bases are as follows: Administration service center number of employees Facility service center square footage occupied Recording service center recording hours The allocation is shown in the following table: Allocation Basis Employees (administration) Square feet occupied (facility) Recording-hours (recording) DSL Music Video Service Department Production Center Admin Facility Recording Pop/Rock Country 2 1 2 3 2 4,000 1,000 2,000 3,000 500 3,500 1,500 Total 10 10,000 5,500 Assume the company has three service departments: Administration (S1), Facility Occupancy (S2) and Recording Service (S3). Costs are recorded in these departments and are allocated to two project departments: Pop/Rock (P1) and Country (P2). All five departments share the same building. Each service department is an intermediate cost center whose costs are recorded as incurred and then distributed to other cost centers. Requirements: You have been hired as a consultant to the company. Prepare an analysis and letter to the president allocating the overhead costs and determining the total departmental costs and overhead rates based upon: Direct method Pop/Rock and Country overhead rates are based upon recording hours. 2

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