The Cost of Operating the Quality Control Department of Ames

question 51

Essay

The cost of operating the quality control department of Ames Manufacturing includes $608,000 of fixed costs and $400,000 of variable costs.The department normally budgets 21,000 inspection hours a year.Two departments receive quality control checks, fabrication and assembly.Fabrication is budgeted at 12,000 hours a year, while assembly is budgeted the remainder.Required:
a.In July, fabrication used 1,000 inspection hours and assembly used 800 hours.How much did each department receive in quality control costs assuming a single-rate is used based on budgeted hours?
b.In August, fabrication used 1,200 inspection hours and assembly used 900 hours.How much did each department receive in quality control costs assuming a dual-rate is used with budgeted usage for fixed costs and actual usage for variable costs?
c.Which method seems more appropriate in this case? Explain.

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Definitions:

Service Revenue

Income earned from the provision of services as opposed to the sale of physical goods.

Cash Received

Money that has been transferred into a company or individual's possession as payment for goods or services.

Cash Deposit

Funds placed in a financial institution for safekeeping, which can include cash or cash equivalents.

Liability Reported

The representation of an entity's obligations or debts on its financial statements, indicating amounts owed to creditors.