COST ACCUMULATION AND ALLOCATION

COST ACCUMULATION AND ALLOCATION

Saouma Manufacturing Company has two departments, machining and finishing. For a given period,

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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 fi nishing 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.

1. Compute the total costs incurred by the machining department and added by the finishing

department.

2. 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.

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