Question

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

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 $470,000 $180,000 $45,000 $76,000
Square footage — 2,700 5,400 5,400
Number of receiving orders 330 — 2,000 1,100
Direct labor hours — — 27,000 46,000

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
Business   Accounting   
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Answer #1
1
Allocation ratios:
Assembly Finishing
Square footage 0.5000 0.5000
Number of receiving orders 0.6452 0.3548
Allocations:
Assembly Finishing
General Factory 235000 235000
Receiving 116136 63864
Direct costs 45000 76000
Total 396136 374864
2
Overhead Rate:
Assembly 14.67 per direct labor hour =396136/27000
Finishing 8.15 per direct labor hour =374864/46000
Workings:
Allocation ratios:
Assembly Finishing
Square footage =5400/(5400+5400) =5400/(5400+5400)
Number of receiving orders =2000/(2000+1100) =1100/(2000+1100)
Allocations:
Assembly Finishing
General Factory =470000*0.5 =470000*0.5
Receiving =180000*0.6452 =180000*0.3548
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