Question

The directors of Cliff-Hang Inc. has been critical of the product costing methods whereby factory overhead is charged to products on a factory-wide overhead rate. The chief accountant suggested a departmentalization of the factory for the purpose of calculating departmental factory overhead rates, accumulating the following estimated direct departmental overhead rate on an annual basis :

PRODUCING DEPARTMENTS:                 TOTAL COSTS ($)

Department No. 08                                                     35,622

Department No. 09                                                     44,949

Department No. 10                                                     47,575

SERVICE DEPARTMENTS :

Store-room                                                                  15,933

Repairs & Maintenance                                               21,351

General Factory Cost                                                  66,270

Other than above mentioned departmental overheads, the annual light and power bill is estimated at $9,300 and is allocated on the basis of electricity usage.

The following departmental information is provided:

                                                                                                            Repair &          Direct

                                    Electricity        Area                No. of              Maintenance    Labor

                                    Usage              Occupied         Requisitions    Hours              Hours

                                                            Sq. ft.

Dept 08                       20%                 21,000             124,200           4,800               80,000

Dept 09                       25%                 25,200             81,000             4,200               90,000

Dept 10                       30%                 29,400             40,500             6,000               80,000

Store-room                  3%                   03,360                 -                        -                       -

Repair & Maint.          12%                 05,040             24,300                  -                       -

Gen. Factory Cost       10%                      -                       -                       -                       -

The order and bases of distribution of service department expenses are as follows:

• General factory cost - area occupied
• Store-room expenses - estimated requisitions
• Repairs & maintenance - estimated repairs and maintenance hours

Required :

You are required to prepare a factory overhead distribution sheet with calculation of overhead rates for the producing departments based on direct labor hours.

Answer 1

sollution

factory overhead distribution sheet (Amounts in $)
	Service Department	Operating Department
	Store-room	Repairs & Maintenance	General Factory Cost	Department No. 08	Department No. 09	Department No. 10	Total
Departmental costs before allocation	$15,933.00	$21,351.00	$66,270.00	$35,622.00	$44,949.00	$47,575.00	$231,700.00
Add:- Light and power bill(usage)($9300@3:12:10:20:25:30)	$279.00	$1,116.00	$930.00	$1,860.00	$2,325.00	$2,790.00	$9,300.00
Departmental costs after allocation of light and power bill	$16,212.00	$22,467.00	$67,200.00	$37,482.00	$47,274.00	$50,365.00	$241,000.00
Allocations:
General factory cost - (area occupied) ($67200@336:504:2100:2520:2940)	$2,688.00	$4,032.00	-$67,200.00	$16,800.00	$20,160.00	$23,520.00	$0.00
Store-room expenses ( estimated requisitions) ($18900@243:1242:810:405)	-$18,900.00	$1,701.00	$0.00	$8,694.00	$5,670.00	$2,835.00	$0.00
Repairs & maintenance -( estimated repairs and maintenance hours) ($28200@48:42:60)	-	-$28,200.00	-	$9,024.00	$7,896.00	$11,280.00	$0.00
Total cost after Allocation(a)	$0.00	$0.00	$0.00	$72,000.00	$81,000.00	$88,000.00	$241,000.00
Allocation Base(Direct labour hours) (b)				$80,000.00	$90,000.00	$80,000.00	$250,000.00
Predetermined overhead rate (a/b)				$0.90	$0.90	$1.10	$0.96