Question

Indirect Cost Allocation:Direct Method

Sprint Manufacturing Company has two production departments, Melting and Molding. Direct general plant management and plant security costs benefit both production departments. Sprint allocates general plant management costs on the basis of the number of production employees and plant security costs on the basis of space occupied by the production departments. In November, the following overhead costs were recorded:

Melting Department direct overhead $180,000

Molding Department direct overhead 400,000

General plant management 100,000

Plant security 35,000

Other pertinent data follow:

	Melting	Moulding
Number of employees	30	55
Space occupied (square feet)	10,000	30,000
Machine hours	10,000	2,000
Direct labor hours	4,000	20,000

(a) Prepare a schedule allocating general plant management costs and plant security costs to the Melting and Molding Departments.

Department	Total	Melting	Molding
General Plant Management	$	$	$
Plant security	$	$	$

b) Determine the total departmental overhead costs for the Melting and Molding Departments.
Melting $
Molding $

(c) Assuming the Melting Department uses machine hours and the Molding Department uses direct labor hours to apply overhead to production, calculate the overhead rate for each production department. (Round your answers to two decimal places.)
Melting $
Molding $

Answer 1

Solution a:

Schedule allocating general plant management costs and plant security costs to the Melting and Molding Departments - Sprint Manufacturing
Department	Total Overhead	Allocation base	Allocation to Melting	Allocation to Moulding
General Plant Management	$100,000.00	Number of production Employees (30:55)	$35,294	$64,706
Plant Security	$35,000.00	Space Occupied (1:3)	$8,750	$26,250
Total	$135,000.00		$44,044	$90,956

Solution b:

Total departmental overhead cost = Direct overhead cost of department + Allocated overhead

Melting = $180,000 + $44,044 = $224,044

Molding = $400,000 + $90,956 = $490,956

Solution c:

Overhead rate of melting (Machine hours) = Total overhead cost of department / Nos of machine hours

= $224,044 / 10000 = $22.40 per machine hours

Overhead rate of molding ( Direct labor hours) = Total overhead cost of department / Nos of direct labor hours

= $490,956 / 20000 = $24.55 per labor hour