Question

Direct Method and Overhead Rates Jasmine Company manufactures both pesticide and liquid fertilizer, with each product...

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 $90,000 $312,000    $169,000    $78,500 $107,700
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

Homework Answers

Answer #1

SOLUTION

(A) Allocation ratios-

Pesticide Liquid fertilizer
Square feet 4200/(4200+4800) = 0.4667 4800/(4200+4800) = 0.5333
Machine hours 24000/(24000+8000) = 0.7500 8000/(24000+8000) = 0.2500
Purchase orders 120/(120+60) = 0.6667 60/(120+60) = 0.3333

Cost assignment-

Pesticide Liquid fertilizer
Direct costs 78,500 107,700
Power
(0.7500*90,000),(0.2500*90,000) 67,500 22,500
General factory
(0.4667*312,000), (0.5333*312,000) 145,610 166,390
Purchasing
(0.6667*169,000), (0.3333*169,000) 112,672 56,328
Total 404,282 352,918

(B) Departmental overhead rates-

Pesticide- $404,282 / 24,000 = $17 per machine hour

Liquid fertilizer = $352,918 / 8,000 - $44 per machine hour

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