Question:
Cost accumulation and allocation
Maller Manufacturing Company makes two different products, M and N. The company's two departments are named after the products; for example, Product M is made in Department M. Maller's accountant has identified the following annual costs associated with these two products.
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Financial data
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Salary of vice president of production division
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$180,000
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Salary of supervisor Department M
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76,000
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Salary of supervisor Department N
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56,000
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Direct materials cost Department M
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300,000
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Direct materials cost Department N
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420,000
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Direct labor cost Department M
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240,000
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Direct labor cost Department N
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680,000
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Direct utilities cost Department M
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120,000
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Direct utilities cost Department N
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24,000
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General factorywide utilities
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36,000
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Production supplies
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36,000
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Fringe benefits
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138,000
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Depreciation
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720,000
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Nonfinancial data
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Machine hours Department M
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5,000
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Machine hours Department N
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1,000
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Required
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 Maller produced 2,000 units of Product M and 4,000 units of Product N during the year. If Maller prices its products at cost plus 30 percent of cost, what price per unit must it charge for Product M and for Product N?