Question

Direct Method and Overhead Rates

Jasmine Company manufactures both pesticide and liquid fertilizer, with each product manufactured in separate departments. Three support departments support the production departments: Power, General Factory, and Purchasing. Budgeted data on the five departments are as follows:

	Support Departments			Producing Departments
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Overhead	$80,000	$316,000	$169,000	$78,800	$107,400
Square feet	1,500	—	1,500	4,200	4,800
Machine hours	—	1,403	1,345	24,000	8,000
Purchase orders	20	40	7	120	60

The company does not break overhead into fixed and variable components. The bases for allocation are power—machine hours; general factory—square feet; and purchasing—purchase orders.

Required:

1. Allocate the overhead costs to the producing departments using the direct method. If required, round your allocation ratios to four decimal places and round allocated costs to the nearest dollar and use the rounded values for the subsequent calculations.

Cost assignment:

	Pesticide	Liquid Fertilizer
Direct costs	$	$
Power
General Factory
Purchasing
Total	$	$

2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

	Departmental overhead rates
Pesticide	$ per machine hour
Liquid Fertilizer	$ per machine hour

Answer 1

1. Allocate the overhead costs to the producing departments using the direct method. If required, round your allocation ratios to four decimal places and round allocated costs to the nearest dollar and use the rounded values for the subsequent calculations.

Cost assignment:

	Pesticide	Liquid Fertilizer
Direct costs	$78800	$107400
Power	80000*24000/32000 = 60000	20000
General Factory	316000*4200/9000 = 147667	168533
Purchasing	169000*120/180 = 112667	56333
Total	$399134	$352266

2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

	Departmental overhead rates
Pesticide	$399134/24000 = 16.63 per machine hour
Liquid Fertilizer	$352266/8000 = 44.03 per machine hour