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Managerial Accounting – Performance Management
Problem 8-27
Visit the website for one of the following companies, or a different company of your choosing.
Coca-Cola www.coca-cola.com
Bridgestone www.bridgestone.com
Motorola www.motorola.com
Casio www.casio.com
Toyota www.toyota.com
Xerox www.xerox.com
Read about the company’s products and operations. Discuss the pros and cons of absorption
and variable costing as the basis for product costing if the firm uses cost-based pricing.
Problem 17-26
Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours
for its two production departments, Etching and Finishing. The Etching Department employs
20 people and the Finishing Department employs 80 people. Each person in these two departments
works 2,000 hours per year. The production-related overhead costs for the Etching Department are
budgeted at $200,000, and the Finishing Department costs are budgeted at $320,000. Two service
departments, Maintenance and Computing, directly support the two production departments. These
service departments have budgeted costs of $48,000 and $250,000, respectively. The production
departments’ overhead rates cannot be determined until the service departments’ costs are allocated.
The following schedule reflects the use of the Maintenance Department’s and Computing
Department’s output by the various departments.
Required:
1. Use the direct method to allocate service department costs. Calculate the overhead rates per direct labor hour for the Etching Department and the Finishing Department.
2. Use the step-down method to allocate service department costs. Allocate the Computing Department’s costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
