Happy Drugs Ltd (HDL) manufactures drugs, and the company has two services departments, the I.T. Department and the cant
Posted: Thu Apr 28, 2022 10:44 am
Happy Drugs Ltd (HDL) manufactures drugs, and the company
has two services departments, the I.T. Department and the
canteen, which serve the two production departments in the
company — the Machining Department and the Finishing
Department.
The work done in the I.T. Department is measured by the direct
labour hours of information technology support work. The work
done in the canteen is measured by the number of employees.
The budgeted costs of the two service departments for 2021 are
as follows:
HDL depreciates its assets on the straight-line basis; its
assets are into the 6th year of an estimated 18-year useful
life.
The distribution of each service department’s effort to the two
production departments are as follows:
Canteen (No. of employees)
Required:
a) Allocate the costs of the two services departments, I.T. and
the canteen, to the production departments, Machining and
Finishing, using the following methods:
i) the direct method;
ii) the step-down method (allocate I.T.
Department’s costs first);
iii) the step-down method (allocate the canteen’s
costs first);
iv) the reciprocal method using linear
equations.
b) Recently, HDL’s management has been considering outsourcing
the work of the canteen to an outside contractor. A reputable
catering company has offered to provide all the services of
HDL’s canteen for $38.75 per employee. If HDL decides to
outsource the services, all existing staff in the canteen will
be transferred to other departments in the company, and all
the equipment currently used in the canteen will be disposed
of with zero residual value.
You are required to come up with a recommendation as to
whether the company should outsource the services of the
canteen. You would only need to consider this proposal from a
financial perspective.
Note: Show your calculations and provide justifications to
support your recommendation.
Note: Students are expected to write in their own
words. Marks will only be awarded if there is a
reasonably cogent discussion. Only minimal marks will be
awarded to answers that are presented in bullets, incoherent
answers or answers that are hard to understand due to language
issues. No marks or minimal marks will be awarded to responses
that are copied and pasted and those without
sufficient paraphrasing. A marking rubric is also provided on
the OLE.
has two services departments, the I.T. Department and the
canteen, which serve the two production departments in the
company — the Machining Department and the Finishing
Department.
The work done in the I.T. Department is measured by the direct
labour hours of information technology support work. The work
done in the canteen is measured by the number of employees.
The budgeted costs of the two service departments for 2021 are
as follows:
HDL depreciates its assets on the straight-line basis; its
assets are into the 6th year of an estimated 18-year useful
life.
The distribution of each service department’s effort to the two
production departments are as follows:
Canteen (No. of employees)
Required:
a) Allocate the costs of the two services departments, I.T. and
the canteen, to the production departments, Machining and
Finishing, using the following methods:
i) the direct method;
ii) the step-down method (allocate I.T.
Department’s costs first);
iii) the step-down method (allocate the canteen’s
costs first);
iv) the reciprocal method using linear
equations.
b) Recently, HDL’s management has been considering outsourcing
the work of the canteen to an outside contractor. A reputable
catering company has offered to provide all the services of
HDL’s canteen for $38.75 per employee. If HDL decides to
outsource the services, all existing staff in the canteen will
be transferred to other departments in the company, and all
the equipment currently used in the canteen will be disposed
of with zero residual value.
You are required to come up with a recommendation as to
whether the company should outsource the services of the
canteen. You would only need to consider this proposal from a
financial perspective.
Note: Show your calculations and provide justifications to
support your recommendation.
Note: Students are expected to write in their own
words. Marks will only be awarded if there is a
reasonably cogent discussion. Only minimal marks will be
awarded to answers that are presented in bullets, incoherent
answers or answers that are hard to understand due to language
issues. No marks or minimal marks will be awarded to responses
that are copied and pasted and those without
sufficient paraphrasing. A marking rubric is also provided on
the OLE.