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 \$460,000 \$170,000 \$42,000 \$77,000 Square footage — 2,200 4,400 4,400 Number of receiving orders 310 — 1,900 1,100 Direct labor hours — — 28,000 43,000

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

Calculation allocation ratio :

 Assembly Finishing Square footage 4400/8800 = 0.50 4400/8800 = 0.50 Number of receiving orders 1900/3000 = 0.6333 1100/3000 = 0.3667

Calculate allocation Cost :

 Assembly Finishing general factory 230000 230000 Receiving 107661 62339 Direct cost 42000 77000 Total Cost 379661 369339

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

Assembly = 379661/28000 = \$13.56 per labour hour

Finishing = 369339/43000 = \$8.59 per labour hour

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