Question

Budgeted yearly information for these departments is as follows:

Design: 800 square feet; 6,000 direct labor hours, at $35/hour

Production: 1,600 square feet; 4,000 direct labor hours, at $25/hour

Apps-R-Us budgeted for the following overhead costs this year:

Rent	$120,000
Utilities	$24,000
Supplies	$5,000
Depreciation (of computer equipment)	$6,000
Manager salary	$90,000

Rent and utilities are allocated to each department based on square footage, and other overhead costs are allocated based on direct labor hours. Design and Production overhead costs are allocated to jobs based on direct labor hours.

How much overhead is allocated to the Design department? To the Production department?

What is the rate used to apply overhead to jobs in the Design department? In the Production department? (Do not round intermediate calculations; round final answer to 2 decimal places.)

Answer 1

	Design Department	Production Department
Overhead allocated	$108,600	$136,400
Rate used to apply overhead to jobs	$18.10	$34.10

Workings:

Computation of overhead costs allocated

	Design Department	Production Department
Rent	$40,000	$80,000
	[$120,000 x 800 / (800 + 1,600)]	[$120,000 x 1,600 / (800 + 1,600)]
Utilities	$8,000	$16,000
	[$24,000 x 800 / (800 + 1,600)]	[$24,000 x 1,600 / (800 + 1,600)]
Supplies	$3,000	$2,000
	[$5,000 x 6,000 / (6,000 + 4,000)]	[$5,000 x 4,000 / (6,000 + 4,000)]
Depreciation	$3,600	$2,400
	[$6,000 x 6,000 / (6,000 + 4,000)]	[$6,000 x 4,000 / (6,000 + 4,000)]
Manager salary	$54,000	$36,000
	[$90,000 x 6,000 / (6,000 + 4,000)]	[$90,000 x 4,000 / (6,000 + 4,000)]
Total Overhead Costs Allocated	$108,600	$136,400

Computation of rate used to apply overhead to jobs

	Design Department	Production Department
Total Overhead Costs Allocated (a)	$108,600	$136,400
Direct labor hours (b)	6,000	4,000
Rate used to apply overhead to jobs (a/b)	$18.10	$34.10