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UNSW Business School

ACCT2522 Management Accounting 1


Term 1, 2019

Topic 1: Understanding Processes and Value Creation, and


Managing Costs I – Overhead Costs
Week 2: Tutorial Questions

Suggested Solutions to Calculation Questions Only

Part II: Managing Costs I – Advanced Electronics Ltd Case

1. Assume that Advanced Electronics allocates the costs of support departments to manufacturing
departments using the reciprocal method.
a. Calculate the manufacturing overhead rates for the Parts and Assembly departments.

Stage 1: Let M = Total costs of Materials Handling Department


P = Total costs of Power Department
(1) M = $100,000 + 40% P
(2) P = $200,000 + 50% M

Stage 2: Substituting in (1) M = 100,000 +0.4 (200,000 +0.5M)


M = 100,000 + 80,000 +0.2M
0.8M = 180,000
M = $225,000
Substituting (2) P = 200,000 +0.5 (225,000)
P = 312,500

Stage 3:

Materials Power Parts Assembly


Budgeted costs 100,000 200,000 600,000 800,000
Allocation of 300/ 250/ 50/
Materials’ costs (225,000) 112,500 600 93,750 600 18,750 600
Allocation of 400/ 400/ 200/
Power’s costs 125,000 1000 (312,500) 125,000 1000 62,500 1000
Total allocated
departmental OH $ 0 $ 0 $818,750 $881,250

Cost driver
DMH (30 x 2000) 60,000
DLH (40 x 2000) 80,000
Overhead rate per
hour (total overhead
÷ cost driver) $13.65 $11.02

1
Alternatively:

Used By
Supplied by Materials Power Parts Assembly
Materials (direct labour hours) - 50% ≈42% ≈8%
(41.66667%) (8.33333%)
Power (kilowatt-hours) 40% 0% 40% 20%

Please note that if you round off to the nearest %, you will get some slightly different answers
as bolded and underlined in red below (unless you use an excel spreadsheet of course!):

Stage 3:

Materials Power Parts Assembly


Budgeted costs 100,000 200,000 600,000 800,000
Allocation of
Materials’ costs (225,000) 112,500 50% 94,500 42% 18,000 8%
Allocation of
Power’s costs 125,000 40% (312,500) 125,000 40% 62,500 20%
Total allocated
departmental OH $ 0 $ 0 $819,500 $880,500

Cost driver
DMH (30 x 2000) 60,000
DLH (40 x 2000) 80,000
Overhead rate per
hour (total overhead
÷ cost driver) $13.66 $11.01

b. Calculate the manufacturing overhead costs allocated to notebooks and tablets given the following
additional information:

Notebooks Tablets
Actual MHs provided by Parts 26,400 39,600

Actual DHLs provided by Assembly 43,200 28,800

Cost allocated to notebooks = (13.65*26,400) +(11.02*43,200) =$836,424


Cost allocated to tables = (13.65*39,600) +(11.02*28,800) =$857,916

2. Assume that Advanced Electronics allocates the costs of supports department to manufacturing
departments using the step-down method. Calculate the support department costs allocated to
each manufacturing department.

Materials Power Parts Assembly


Allocation of
80,000 4/10 (200,000) 80,000 4/10 40,000 2/10
Power’s costs
Allocation of 250/3
(180,000) 150,000 30,000 50/300
Material’s costs 00

2
Alternatively:

Used By
Supplied by Materials Power Parts Assembly
Materials (direct labour hours) - 50% ≈42% ≈8%
(41.66667%) (8.33333%)
Power (kilowatt-hours) 40% 0% 40% 20%

Please note that if you round off to the nearest %, you will get some slightly different answers
as bolded and underlined in red below (unless you use an excel spreadsheet of course!):

Materials Power Parts Assembly


Allocation of
80,000 40% (200,000) 80,000 40% 40,000 20%
Power’s costs
Allocation of 42%/ 8%/
(180,000) 151,200 28,800
Material’s costs 50% 50%

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