Question

# Direct Method Eilers Company has two producing departments and two support departments. The following budgeted data...

Direct Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

 Support Departments Producing Departments General Factory Receiving Assembly Finishing Direct overhead \$420,000 \$170,000 \$45,000 \$79,000 Square footage — 2,800 5,600 5,600 Number of receiving orders 390 — 1,850 1,200 Direct labor hours — — 21,000 47,000

The company has decided to simplify its method of allocating support service costs by switching to the direct method.

Required:

1. Allocate the costs of the support departments to the producing departments using the direct method. Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar. Use the rounded values for subsequent calculations.

Allocation ratios:

 Assembly Finishing Square footage Number of receiving orders Allocations: Assembly Finishing General Factory \$ \$ Receiving Direct costs Total \$ \$

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

 Overhead Rate Assembly per direct labor hour Finishing per direct labor hour

 1 Allocation ratios: Assembly Finishing Square footage 0.5 0.5 Number of receiving orders 0.6066 0.3934 Allocation: Assembly Finishing General Factory 210000 210000 Receiving 103122 66878 Direct costs 45000 79000 Total 358122 355878 2 Overhead Rate Assembly 17.05 per direct labor hour =358122/21000 Finishing 7.57 per direct labor hour =355878/47000
 Workings: Allocation ratios: Assembly Finishing Square footage =5600/(5600+5600) =5600/(5600+5600) Number of receiving orders =1850/(1850+1200) =1200/(1850+1200) Allocation: Assembly Finishing General Factory =420000*0.5 =420000*0.5 Receiving =170000*0.6066 =170000*0.3934