MANAGEMENT 122 MANAGEMENT ACCOUNTING SPRING 2016 DANNY S. LITT CASE ASSIGNMENT 1 DSL Company has two manufacturing departments - the Machining...

MANAGEMENT 122 SPRING 20 16 M ANAGEMENT A CCOUNTING D ANNY S. L ITT CASE ASSIGNMENT 1 Page | 1 DSL Company has two manufacturing departments – the Machining Department and the Assembly Department. Each department has a different overhead cost driver – machine hours in the Machining Department and assembly labor hours in the Assembly Department.

Different jobs need different amounts of machining and assembly resources. The company allocates Machining Department overhead costs using machine hours and Assembly Department overh ead costs using labor hours. Details of the company’s budgeted manufacturing overhead costs of $1, 152,000 for 201 6 are shown below: , The Eng ineering Department supports all the engineering activity in the other departments. The Materials Department is res ponsible for managing and moving materials and components required for different jobs. Each job at the company is different and requires small quantities of unique components to be machined and assembled. The overhead rate for the Machining Department is b ased upon 10,000 machine hours. The overhead rate for the Assembly Department is based upon 20,000 direct labor hours. Expense Engineering and Production Control Materials Management Machining Assembly Total Budget Supervisors Salary 51,000 44,000 52,000 60,000 207,000 Engineering salaries 115,000 46,000 60,000 24,000 245,000 Depreciation and maintenance 41,000 55,000 79,000 20,000 195,000 Indirect materials 20,000 20,000 11,000 7,000 58,000 Indirect labor 43,000 63,000 44,000 45,000 195,000 Rent, utilities and insurance 16,000 24,000 64,000 48,000 152,000 Plant admin 24,000 20,000 26,000 30,000 100,000 310,000 272,000 336,000 234,000 1,152,000 $ Support Departments Operating Departments M ANAGEMENT 122 SPRING 2016 Page | 2 The departmental costs and support percentages are shown below: Assume the company has two service departments and their cost s are recorded in these departments and are allocated to t wo pro duction departments. All four 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 cent ers . Requirements Your group has been hired as consultants to the company. Prepare a n analysis and letter to the president a llocating the overhead costs and determining the total departmental costs and their respective overhead rates based upon the following methods : 1. Direct method 2. Step method 3. Reciprocal method Engineering and Production Control Materials Management Machining Assembly T otal Budget Overhead Budget before allocations 310,000 272,000 336,000 234,000 1,152,000 Services Provided by:

Engineering and Production Control Salaries 36,000 60,000 24,000 120,000 Percentage 30% 50% 20% 100% Materials Management Labor Hours 400 800 2,800 4,000 Percentage 10% 20% 70% 100% Activity Driver 10,000 20,000 Overhead Rate 33.60 11.70 Support Departments Operating Departments