Posted: April 11th, 2016

# What is the importance?

Zhao Manufacturing Company has two departments, machining and finishing. For a given period the following costs were incurred by the company as a whole: direct material, \$200,000; direct labor, \$75,000; and indirect production, \$80,000. The grand total was \$355,000.

The machining department incurred 70% of the direct material costs, but only 33 1/3% of the direct labor costs. As in commonplace, indirect production costs incurred by each department were allocated to products in proportion to the direct-labor costs of products within the departments. Three products were produced.

Product Direct Material Direct Labor Sigma 40% 30% Chi 30% 30% Delta 30% 40% Total for the machining department 100% 100%

Sigma 33.33% 40% Chi 33.33% 40% Delta 33.33% 20% Total for the finishing department 100% 100% The indirect production costs incurred by the machining and finishing departments and allocated to all products therein amounted to machining, \$38,000 and finishing, \$42,000. 1. Compute the total costs incurred by the machining department and added by the finishing department. 2. Compute the total costs of each product that would be show as finished-goods inventory if all the products were transferred to finished stock on completion. (There were no beginning inventories.)
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