1. **QUESTION 5: Allocate support department costs to operating departments using the direct method.** - Given support department costs: - Information Technology (IT): 600,000 - Operations: 1,800,000 - Operating department costs before allocation: - Claims Processing: 450,000 - Administration: 850,000 - Sales: 650,000 - Allocation percentages from support to operating departments: - IT to Claims Processing: 20%, Administration: 40%, Sales: 20% - Operations to Claims Processing: 10%, Administration: 50%, Sales: 30% - Step 1: Allocate IT costs: - Claims Processing: $600,000 \times 0.20 = 120,000$ - Administration: $600,000 \times 0.40 = 240,000$ - Sales: $600,000 \times 0.20 = 120,000$ - Step 2: Allocate Operations costs: - Claims Processing: $1,800,000 \times 0.10 = 180,000$ - Administration: $1,800,000 \times 0.50 = 900,000$ - Sales: $1,800,000 \times 0.30 = 540,000$ - Step 3: Calculate total costs after allocation: - Claims Processing: $450,000 + 120,000 + 180,000 = 750,000$ - Administration: $850,000 + 240,000 + 900,000 = 1,990,000$ - Sales: $650,000 + 120,000 + 540,000 = 1,310,000$ 2. **QUESTION 6: Factory overhead calculations.** - Given: - Budgeted factory overhead = 568,000 - Budgeted direct labour hours = 71,000 - Actual factory overhead = 582,250 - Actual direct labour hours = 71,500 - (i) Predetermined overhead rate: $$\text{Predetermined rate} = \frac{568,000}{71,000} = 8$$ per direct labour hour - (ii) Applied overhead: $$\text{Applied overhead} = 8 \times 71,500 = 572,000$$ - (iii) Overapplied or underapplied overhead: $$\text{Over/Underapplied} = \text{Actual} - \text{Applied} = 582,250 - 572,000 = 10,250$$ (underapplied) - (iv) Journal entry to transfer underapplied overhead to Cost of Goods Sold: Debit: Cost of Goods Sold 10,250 Credit: Factory Overhead 10,250 3. **QUESTION 7: Allocate service department costs to production departments using the direct method.** - Given labor hours used by service departments: - Sourcing to Assembly: 40,000, to Finishing: 60,000 - Operations to Assembly: 60,000, to Finishing: 50,000 - Costs: - Sourcing: 165,000 - Operations: 205,000 - Step 1: Calculate total labor hours for each service department's allocation: - Sourcing total hours to allocate: $40,000 + 60,000 = 100,000$ - Operations total hours to allocate: $60,000 + 50,000 = 110,000$ - Step 2: Allocate Sourcing costs: - Assembly: $165,000 \times \frac{40,000}{100,000} = 66,000$ - Finishing: $165,000 \times \frac{60,000}{100,000} = 99,000$ - Step 3: Allocate Operations costs: - Assembly: $205,000 \times \frac{60,000}{110,000} \approx 111,818$ - Finishing: $205,000 \times \frac{50,000}{110,000} \approx 93,182$ - Final allocated costs: - Assembly: $66,000 + 111,818 = 177,818$ - Finishing: $99,000 + 93,182 = 192,182$