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Cost Accumulation and Allocation Problem

Belcher Manufacturing Company makes two different products, M and N. The company's twp departments are names after the products; for example, Products M is made in Department M. Belcher's accountant has identifies the following annual costs associated with these two products.

Financial Data
Salary of vice president of production devision 90,000
Salary of supervisor Department M 38,000
Salary of supervisor Department N 28,000
Direct Material Cost Department M 150,000
Direct Material Cost Department N 210,000
Direct labor cost Department M 120,000
Direct labor cost Department N 340,000
Direct utilites cost Department M 60,000
Direct utilites cost Department N 12,000
General Factory Wide Utlities 18,000
Production supplies 18,000
Fringe Benefits 69,000
Depreciation 360,000
Nonfinacial Data
Machine hours Department M 5,000
Machine hours Department N 1,000

A.) Identify the costs that are (1) direct costs of department M, (2) direct costs of department N, and (3) indirect costs.
B.) Select the appropriate cost drivers for the indirect costs and allocate these costs to Departments M and N.
C.) Determine the total estimated cost of the products made in Departments M and N. Assume that Belcher produced 2,000 units of Product M and 4,000 units of product N during the year. If Belcher prices its products at cost plus 30 present of cost, what price per unit must it chart for product M and product N?

Solution Summary

The solution explains how to classify costs, allocate costs and determine the total cost for the department