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Responsibility Accounting Exercise Problems

1. The Carpenter Shop had a predetermined billing rate of $9.90 per service hour ($19,800 budget / 2,000 hours). The Electricians had a rate of $13.85 per hour ($27,700 budget / 2,000 hours). The producing departments were charged based on these rates for their actual service hours. 2. Variances were calculated for each service department by comparing budgeted costs (with 70% of Carpenter budget and 80% of Electricians budget as fixed costs) to actual monthly expenses. 3. ABC Company wants greater cost accountability. Service department costs will continue to be allocated to producing departments, but supervisors will now receive monthly reports on budget vs. actual costs for their

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56 views

Responsibility Accounting Exercise Problems

1. The Carpenter Shop had a predetermined billing rate of $9.90 per service hour ($19,800 budget / 2,000 hours). The Electricians had a rate of $13.85 per hour ($27,700 budget / 2,000 hours). The producing departments were charged based on these rates for their actual service hours. 2. Variances were calculated for each service department by comparing budgeted costs (with 70% of Carpenter budget and 80% of Electricians budget as fixed costs) to actual monthly expenses. 3. ABC Company wants greater cost accountability. Service department costs will continue to be allocated to producing departments, but supervisors will now receive monthly reports on budget vs. actual costs for their

Uploaded by

Jessa Mae Lavado
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Responsibility Accounting

Problem 1

ABC Company’s two service departments provide the following data:

Service- Actual
Monthly
Service Center hours Monthly
Budget
Available Expense
Carpenter Shop P 20,000 2,000 P 19,800
Electricians 30,000 2,000 27,700

The two service departments serve three producing departments which show the following
budgeted and actual and service-hours data:

Estimated Hours of Services


Benefiting Actual Hours of Services Used
Required
Department
Carpenter Shop Electricians Carpenter Shop Electricians
1 600 900 400 1,000
2 750 1,000 800 850
3 650 600 450 550
Required:

1. Compute a predetermined billing rate for each service department


2. Compute the amounts charged to the producing departments for services rendered.
Use the predetermined billing rates computed for requirement 1.
3. Compute spending and idle capacity variances for each service department, assuming
fixed cost represents 70% of budgeted cost for the Carpenter shop and 80% for
Electricians.

Problem 2

ABC Company wants a greater cost consciousness and cost responsibility among its
departmental supervisors. Service department costs have been allocated to the producing
departments using predetermined rates for some time. Now management asks the Cost
Department, with the cooperation of the departmental supervisors, not only to prepare
departmental budgets but also to give the supervisors monthly reports for cost control
information.

The company operates three producing departments A, B, C, and two service departments,
Repairs and Maintenance and Utilities. For the year 20A, the Cost Department prepared the
following departmental factory overhead budgets and determined the factory overhead rates
based on direct labor hours:
Producing Departments Service Departments
Repairs and
A B C Utilities
Maintenance
Total Budgeted expense P 52,000 P 52, 450 P 41, 900 P 56,000 P 49,000
Allocation of service department cost: (49,000)
Utilities (based on kilowatt-hours) 14,000 15,750 12,250 7,000
Repairs and Maintenance (based on 18,000 27,990 17,100 (63,000)
labor hours)
Total P 84,000 P 96,100 P 71,250 0 0
Bases : Kilowatt-hours (KWH) 40,000 45,000 35,000 20,000
Direct labor hours (DLH) 20,000 31,000 19,000
Service department allocation rates P .90 per DLH P .35 per KWH
Departmental overhead rates P 4.20 P 3.10 per P 3.75 per
per DLH DLH DLH

Actual cost and operating data before allocation of service department costs at the end of the
budget period are:

Producing Departments Service Departments


Repairs and
A B C Utilities
Maintenance
Total Actual expense P 56,020 P 52, 850 P 42, 580 P 56, 320 P 50,040
Operating data:
Direct labor hours 20,480 29,850 20,100
Kilowatt-hours 39,300 46,200 35,800 18,950

Required:

1. Compute the amount of factory overhead applied for each of the three producing
departments.
2. Compute the amount of over - or under applied factory overhead for each of the three
producing departments. To determine actual overhead in the producing departments,
charge service department costs on the basis of actual kilowatt-hours and actual labor
hours multiplied by the predetermined billing rate.
3. Compute the total variance for each of the two service departments.

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