Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 43

Account Analysis, Two-Stage Allocation, and Product Costing

Tiger Furnishings’s CFO believes that a two-stage cost allocation system would give managers better cost information. She asks the company’s cost accountant to analyze the accounts and assign overhead costs to two pools: overhead related to direct labor cost and overhead related to machine-hours.

The analysis of overhead accounts by the cost accountant follows:

Manufacturing Overhead	Overhead Estimate	Cost Pool Assignment
Utilities	$ 1,800	Machine-hour related
Supplies	5,000	Direct labor cost related
Training	10,000	Direct labor cost related
Supervision	25,800	Direct labor cost related
Machine depreciation	32,000	Machine-hour related
Plant depreciation	14,200	Machine-hour related
Miscellaneous	85,300	Direct labor cost related

All other information is the same as in Exercise 6-31.

Required

a. Draw the cost flow diagram that illustrates the two-stage cost allocation of overhead for Tiger Furnishings using the results of the cost accountant’s analysis of accounts.

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b. Compute the product costs per unit assuming that Tiger Furnishings uses direct labor costs and machine-hours to allocate overhead to the products.

Step 1 of 6

(a)

A cost flow diagram that would illustrate the two-stage cost allocation of overhead for T Furnishings should be drawn as follows: