Question

Quality Manufacturers Ltd (QML) has three support departments: Equipment Maintenance,

Quality Control and Material Handling Department. The company has two departments that are
directly engaged in production: The Bending Department and the Welding Department. The usage
of the three-support department output is as follows:
Service Provider Departments and percentage of their services used by the user departments
Equipment Maintenance Department
- Bending department and Welding department use 30% and 70% of the services,
respectively
Quality Control Department
- Equipment Maintenance Department 5%
- Material Handling Department 20%
- Bending Department 25%
- Welding Department 50%
Material Handling Department
- Quality Control Department 5%
- Bending Department 35%
- Welding Department 60%
The budgeted costs in the respective departments were as follows:
Support departments:
Equipment maintenance $ 200 000
Quality control 120 000
Material handling 300 000
$ 620 000
Production departments:
Bending $ 600 000
Welding 100 000
$ 700 000
Total overhead costs $ 1 320 000
Required:
ACC502Sem: Operations Management Accounting Semester 2, 2020
7
Use the Step-down method to allocate the budgeted costs of the Equipment Maintenance, Quality
Control and Material Handling to the Bending and Welding Departments. QML allocates the costs
of the Quality Control Department first.
(Note: Round off your answers to the nearest whole numbe

Answer 1

Quality Manufacturers Ltd (QML)

Service Departments Production Dept

Equipment Quality Material Bending Welding

Maintenance Control Handling

Budgeted Costs $200,000 $120,000 $300,000 $600,000 $100,000

Quality Control 6,000 (120,000) 24,000 30,000 60,000

Maintenance (206,000) 0 61,800 144,200

Material Handling (324,000) 119,368 204,632

Total costs 0 0 0 $811,168 $508,832

Step-by-step explanation:

a) Data and Calculations:

Equipment Maintenance Department

- Bending department 30%

- Welding department 70%

Quality Control Department

- Equipment Maintenance Department 5%

- Material Handling Department 20%

- Bending Department 25%

- Welding Department 50%

Material Handling Department

- Quality Control Department 5%

- Bending Department 35%

- Welding Department 60%

Service Departments Production Dept

Equipment Quality Material Bending Welding

Maintenance Control Handling

Budgeted Costs $200,000 $120,000 $300,000 $600,000 $100,000

Quality Control 6,000 (120,000) 24,000 30,000 60,000

Maintenance (206,000) 0 61,800 144,200

Material Handling (324,000) 119,368 204,632

Total costs 0 0 0 $811,168 $508,832