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    CaseRiverGarage SolutionNotes

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    Marie
    The document discusses cost allocation and activity based costing at a garage called the River Garage. It outlines various cost pools like premises and energy, administration, warehouse, etc. and how costs should be allocated between them. It then calculates the full hourly costs for the mechanical department and bodyshop after allocating indirect costs. Finally, it provides an example of calculating the full cost of a repair job done at the garage.

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    CaseRiverGarage SolutionNotes

    Uploaded by

    Marie
    6 views7 pages
    The document discusses cost allocation and activity based costing at a garage called the River Garage. It outlines various cost pools like premises and energy, administration, warehouse, etc. and how costs should be allocated between them. It then calculates the full hourly costs for the mechanical department and bodyshop after allocating indirect costs. Finally, it provides an example of calculating the full cost of a repair job done at the garage.

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    CaseRiverGarage_SolutionNotes

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    The document discusses cost allocation and activity based costing at a garage called the River Garage. It outlines various cost pools like premises and energy, administration, warehouse, etc. and how costs should be allocated between them. It then calculates the full hourly costs for the mechanical department and bodyshop after allocating indirect costs. Finally, it provides an example of calculating the full cost of a repair job done at the garage.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views7 pages

    CaseRiverGarage SolutionNotes

    Uploaded by

    Marie
    The document discusses cost allocation and activity based costing at a garage called the River Garage. It outlines various cost pools like premises and energy, administration, warehouse, etc. and how costs should be allocated between them. It then calculates the full hourly costs for the mechanical department and bodyshop after allocating indirect costs. Finally, it provides an example of calculating the full cost of a repair job done at the garage.

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    © All Rights Reserved
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    Download as pdf or txt
    of 7

    Management Accounting

    Session 6: The River Garage


    What’s going on here?
    Indirect expenses are currently allocated to the following cost pools:

    Premises and
    Administration Customers
    energy

    Warehouse Mechanical Dept. Bodyshop

    Direct Direct
    Direct expenses: Labour Labour
    30.70/hour 28.50/hour
    What’s going on here?
    Service functions Production functions
     work on product
    Premises and
    energy
    Mechanical
    Dept.
    Customers

    Administration Bodyshop

    Warehouse

    How should we order the service functions? Direct or step down?


    Ordering service cost pools
    Premises and Floor space 1
    used
    energy

    No of Mechanical
    Administration Employees
    2 Dept.

    To production
    dept. according 3
    Warehouse to price Bodyshop

    Direct Labour
    Hours 4
    Customers
    PREMISES and MECHANICAL
    RIVER GARAGE ADMINISTRATION WAREHOUSE CUSTOMERS DEPT BODYSHOP
    ENERGY DEPT

    1st stage €9500 €9170 €5330 €4000 €3000 €4500


    Floor area square Price of parts/
    Cost driver # of staff Direct labor hours Direct labor hours Direct labor hours
    meter € charged parts

    # of cost drivers 2,300 sqm 11 people €130,800 930 hours 550 hours 380 hours

    Cost of one cost 843 €/p 0.0852 €/€ 7.002 €/h 21.59 €/h 32.84 €/h
    4.13 €/sqm
    driver
    Premises energy 103 4,131 826 1652 2,788
    9,273

    Administration 1,686 1,686 3,372 2,529


    11,147
    Warehouse (no
    N/A N/A N/A
    allocation)
    6,512
    Customers
    department 3,851 2,661

    Total: 11,875 12,478

    To Jobs via Overhead on ‘parts’, no further Service allocation


    Calculate the full cost of an hour in…?

    Mechanical
    Bodyshop
    Department

    Direct labor cost 30.70 28.50

    plus Indirect cost 21.59 €11875/550hrs 32.84 €12478/380hrs

    equals Full cost 52.29 €/hour 61.34 €/hour


    What is the cost of M Lambda’s repair?

    Inspection/
    2Hrs X €52.29 = €104.58
    Mechanical Department
    Change clock/
    0.5Hr X €52.29 = €26.15
    Mechanical Department
    Clock €54.50 = €54.50
    Warehouse O/H* €54.50 X 0.0852 = €4.64
    Bodyshop 1.5H X €61.34 = €92.01
    Total €281.87

    (*O/H allocation for warehouse based upon Parts= €11 147/€130 800= 0.0852)

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