Question

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	$430,000	$180,000	$46,000	$77,000
Square footage	—	2,000	4,000	4,000
Number of receiving orders	310	—	1,700	1,500
Direct labor hours	—	—	25,000	46,000

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

Answer 1

--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	0.5313 [1700/(1700 + 1500)]	0.4688 [1500/(1700 +1500)]

--Requirement 2

	Assembly	Finishing
General Factory	$215,000	$215,000
Receiving	$95,634	$84,384
Direct costs	$46,000	$77,000
Total	$356,634	$376,384

--Working

	Assembly	Finishing
General Factory	=430000*0.5	=430000*0.5
Receiving	=180000*0.5313	=180000*0.4688
Direct costs	46000	77000

--Requirement 3

	Total Cost after allocation	no. of direct labor hours	Overhead Rate
Assembly	$356,634	25000	$                 14.27	per direct labor hour
Finishing	$376,384	46000	$                   8.18	per direct labor hour