Accounting Business Reporting for Decision Making

492 Accounting: Business Reporting for Decision Making

Required

a. Draw a diagram showing the structure of the costing system.

b. Calculate the support department’s allocation rate if estimated hours is the allocation base.

c. Calculate the support department’s allocation rate if actual hours is the allocation base.

d. Discuss one advantage and one disadvantage for each type of allocation rate.

11.24   LO3, 4

Mercy Hospital uses a costing system to determine the cost of patients who have surgery. The

hospital uses a budgeted indirect cost rate for allocating indirect costs to patient stays. In March,

the operating room had a budgeted allocation base of 1000 operating hours. The budgeted

operating room indirect costs were $66 000.

Patient Dwight Schuller was in the operating room for four hours during March. Other costs

related to Schuller’s four-hour surgery include the following.

Patient medicine

Cost of nurses

Cost of supplies

$ 250

3 500

800

Physician cost is not included because physicians bill patients separately from the hospital billing

system.

Required

a. Calculate the budgeted (estimated) indirect cost rate for the operating room.

b. Calculate the total costs of Schuller’s four-hour surgery.

11.25   LO3, 5

Sheldon Manufacturing estimates the following activity for the coming year:

•    expected   production  10       000     units

•    expected   direct  labour  hours   10       000     hours

•    expected   manufacturing   overhead    $100        000.

Manufacturing overhead is allocated on the basis of direct labour hours. At the end of the finan-

cial period, the following information was collected:

•    direct labour  hours    9000    hours

•    manufacturing  overhead    $120        000.

Direct labour costs were $30 per hour and there was no direct labour cost variance.

Required

a. Calculate the predetermined manufacturing overhead rate at the beginning of the year.

b. Calculate the actual manufacturing overhead rate for the year.

c. Calculate an inventoriable product cost based on:

i. budgeted costs

ii. actual costs.

11.26    LO6

The Torquay Produce Suppliers packages and distributes three grades of animal feed. The

material cost per tonne and estimated annual sales for each of the products are as follows.

Product

Material

cost

Estimated

sales

Super Premium

Premium

Economy

$16.00

$12.00

$10.00

1 000 tonnes

1 500 tonnes

2 500 tonnes

The indirect cost of operating the machinery used to package all three products is $20 000 per year.

In the past, prices have been set by allocating the indirect costs to products on the basis of esti-

mated sales in tonnes. The resulting total costs (material costs plus allocated fixed overhead) are

then marked up by 100 per cent.