Discussion Post: Cost Accumulation and Allocation
Saouma Manufacturing Company has two departments, machining and finishing. For a given period, the following costs were incurred by the company as a whole: direct material, $400,000; direct labor, $90,000; and indirect production, $40,000. The grand total was $530,000.
The machining department incurred 50% of the direct-material costs, but only 10% of the direct-labor costs. Indirect production costs amounted to $10,000 in the machining department and $30,000 in finishing.
Three products were produced using the following proportions of direct material and direct labor in the two departments.
Product Direct Material Direct Labor
Alpha 20% 50%
Beta 40% 10%
Gamma 40% 40%
Total for the machining department 100% 100%
Alpha 60% 10%
Beta 30% 20%
Gamma 10% 70%
Total added by finishing department 100% 100%
As is commonplace, indirect production costs incurred by each department were allocated to products in proportion to the direct-labor costs of products within the departments.
• Compute the total costs incurred by the machining department and added by the finishing department.
• Compute the total costs of each product that would be shown as finished-goods inventory if all the products were transferred to finished stock on completion.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.