In: Accounting
Direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 25 people, and the Assembly Department employs 75 people. Each person in these two departments works 1,940 hours per year. The production-related overhead costs for the Molding Department are budgeted at $180,000, and the Assembly Department costs are budgeted at $76,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $201,000 and $358,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the Engineering Department’s and General Factory Department’s output by the various departments.
Engineering | General Factory | Molding | Assembly | |
Engineering hours | — | 2,500 | 1,800 | 8,200 |
Square feet | 98,240 | — | 435,940 | 79,820 |
For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar.
Required:
1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments for support department costs. Round final answers to the nearest cent.
Overhead rate per DLH | |
Molding | $ |
Assembly | $ |
2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments. Round final answers to the nearest cent. Round your intermediate calculations to four decimal places.
Overhead rate per DLH | |
Molding | $ |
Assembly | $ |
Macalister Corporation | ||||
1. Allocation of cost of service departments to the operating departments using the direct method | ||||
To | ||||
From | Engineering | General Factory | Molding | Assembly |
Department Costs | $ 201,000 | $ 358,000 | $ 180,000 | $ 76,000 |
Engineering Allocation | $ (201,000) | $ - | $ 36,180 | $ 164,820 |
General Factory Allocation | $ - | $ (358,000) | $ 302,595 | $ 55,405 |
Total Cost | $ - | $ - | $ 518,775 | $ 296,225 |
Overhead rate per DLH | ||||
Molding | Assembly | |||
Employees | 25 | 75 | ||
Labour hours per employee | 1,940 | 1,940 | ||
Total Labour Hours per year | 48,500 | 145,500 | ||
Total Cost | $ 518,775 | $ 296,225 | ||
Overhead rate per DLH | $ 10.6964 | $ 2.0359 | ||
Calculations : | ||||
Engineering Allocation on the basis of engineering hours | ||||
Engineering Hours | Cost Allocation | Calculation | ||
Molding | 1,800 | 36,180.00 | (18/100*201,000) | |
Assembly | 8,200 | 164,820.00 | (82/100*201,000) | |
Total | 10,000 | 201,000.00 | ||
General Factory Allocation on the basis of square feet | ||||
Square Feet | Cost Allocation | Calculation | ||
Molding | 435,940 | 302,595.24 |
(435,940/515,760* 358,000) |
|
Assembly | 79,820 | 55,404.76 |
(79,820/515,760* 358,000) |
|
Total | 515,760 | 358,000.00 | ||
2. Allocation of cost of service departments to the operating departments using the reciprocal method | ||||
To | ||||
From | Engineering | General Factory | Molding | Assembly |
Department Costs | $ 201,000 | $ 358,000 | $ 180,000 | $ 76,000 |
Engineering Allocation | $ (266,818) | $ 53,364 | $ 38,422 | $ 175,032 |
General Factory Allocation | $ 65,818 | $ (411,364) | $ 292,068 | $ 53,478 |
Total Cost | $ - | $ - | $ 510,490 | $ 304,510 |
Overhead rate per DLH | ||||
Molding | Assembly | |||
Employees | 25 | 75 | ||
Labour hours per employee | 1,940 | 1,940 | ||
Total Labour Hours per year | 48,500 | 145,500 | ||
Total Cost | $ 510,490 | $ 304,510 | ||
Overhead rate per DLH | $ 10.5256 | $ 2.0929 | ||
Calculations : | ||||
Let total engineering dept cost be x and total general factory cost be y | ||||
Total engineering dept Cost = Cost of engineering dept + Allocation of general factory dept | ||||
= 201000 + (98240/614000) * Cost of general factory dept | ||||
= 201000 + (98240/614000) * y | ||||
= 201000 + 0.16 y …….(Equation 1) | ||||
Total general factory Cost = Cost of general factory dept + Allocation of engineering dept | ||||
= 358000 + (2500/12500) * Cost of engineering dept | ||||
= 358000 + (2500/12500) * x | ||||
= 358000 + 0.2 x …….(Equation 2) | ||||
By putting value of general factory cost in equation 1 | ||||
x | = 201000 + 0.16 y | |||
x | = 201000 + 0.16 (358000 + 0.2x) | |||
x | = 201000 + 57280 + 0.032x | |||
x - 0.032x | = 201000 + 57280 | |||
0.968x | = 258280 | |||
x | = 258280/0.968 | |||
x | = 266818 | |||
General factory cost y | = 358000 + 0.2 (266818) | |||
= 411364 | ||||
Engineering Allocation on the basis of engineering hours | ||||
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Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...Direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates
based on direct labor hours for its two production
departments—Molding and Assembly. The Molding Department employs 23
people, and the Assembly Department employs 76 people. Each person
in these two departments works 1,920 hours per year. The
production-related overhead costs for the Molding Department are
budgeted at $221,000, and the Assembly Department costs are
budgeted at $91,000. Two support departments—Engineering and
General Factory—directly support the two production...
Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...
Direct Method,
Reciprocal Method, Overhead Rates
Macalister Corporation
is developing departmental overhead rates based on direct labor
hours for its two production departments—Molding and Assembly. The
Molding Department employs 23 people, and the Assembly Department
employs 78 people. Each person in these two departments works 1,820
hours per year. The production-related overhead costs for the
Molding Department are budgeted at $196,000, and the Assembly
Department costs are budgeted at $91,000. Two support
departments—Engineering and General Factory—directly support the
two production...
Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...
Direct Method,
Reciprocal Method, Overhead Rates
Macalister Corporation
is developing departmental overhead rates based on direct labor
hours for its two production departments—Molding and Assembly. The
Molding Department employs 15 people, and the Assembly Department
employs 79 people. Each person in these two departments works 1,850
hours per year. The production-related overhead costs for the
Molding Department are budgeted at $210,000, and the Assembly
Department costs are budgeted at $74,000. Two support
departments—Engineering and General Factory—directly support the
two production...
direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates
based on direct labor hours for its two production
departments—Molding and Assembly. The Molding Department employs 23
people, and the Assembly Department employs 78 people. Each person
in these two departments works 2,020 hours per year. The
production-related overhead costs for the Molding Department are
budgeted at $177,000, and the Assembly Department costs are
budgeted at $86,000. Two support departments—Engineering and
General Factory—directly support the two production...
Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...Direct Method, Reciprocal Method, Overhead Rates Macalister
Corporation is developing departmental overhead rates based on
direct labor hours for its two production departments—Molding and
Assembly. The Molding Department employs 21 people, and the
Assembly Department employs 79 people. Each person in these two
departments works 2,020 hours per year. The production-related
overhead costs for the Molding Department are budgeted at $236,000,
and the Assembly Department costs are budgeted at $86,000. Two
support departments—Engineering and General Factory—directly
support the two production...
Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...Direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates
based on direct labor hours for its two production
departments—Molding and Assembly. The Molding Department employs 16
people, and the Assembly Department employs 77 people. Each person
in these two departments works 1,950 hours per year. The
production-related overhead costs for the Molding Department are
budgeted at $176,000, and the Assembly Department costs are
budgeted at $92,000. Two support departments—Engineering and
General Factory—directly support the two production...
Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct...Direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates
based on direct labor hours for its two production
departments—Molding and Assembly. The Molding Department employs 16
people, and the Assembly Department employs 77 people. Each person
in these two departments works 2,020 hours per year. The
production-related overhead costs for the Molding Department are
budgeted at $198,000, and the Assembly Department costs are
budgeted at $83,000. Two support departments—Engineering and
General Factory—directly support the two production...
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