Question

In: Accounting

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 $470,000 $180,000 $48,000 $76,000
Square footage 2,000 4,000 4,000
Number of receiving orders 370 1,600 1,500
Direct labor hours 26,000 50,000

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

Solutions

Expert Solution

  • All working forms part of the answer
  • Requirement 1

Assembly

Finishing

Square footage

0.5000 [ 4000/(4000 + 4000)]

0.5000 [ 4000/(4000 + 4000)]

Number of receiving orders

0.5161 [1600/(1600 + 1500)]

0.4839 [1500/(1600 +1500)]

  • Requirement 2

Allocations

Assembly

Finishing

General Factory

$235,000

$235,000

Receiving

$92,898

$87,102

Direct costs

$48,000

$76,000

Total

$375,898

$398,102

--Working

Allocations

Assembly

Finishing

General Factory

=470000*0.5

=470000*0.5

Receiving

=180000*0.5161

=180000*0.4839

Direct costs

48000

76000

  • Requriement 3

Total Cost after allocation

no. of direct labor hours

Overhead Rate

Assembly

$375,898

26000

$                 14.46

per direct labor hour

Finishing

$398,102

50000

$                   7.96

per direct labor hour


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