Question

Assume that the company uses the step method of allocating service department overhead costs to operating departments and Building and Grounds overhead costs are allocated first.

The overhead costs of the Personnel Department allocated to Department B are: (2)

a. R112 970

b. R107 368

c. R107 590

d. R0

Company has two service departments and two operating departments. Budgeted costs and other data relating to these departments are presented below: Building and Grounds Personnel Operating Departments A B Overhead Costs R54 000 R200 000 R650 000 R800 000 Square meters occupied 1 000 3 000 12 000 15 000 Number of employees 10 5 45 55 Direct labourhours 76 000 92 000 Additional information: • Overhead costs of Building and Grounds are allocated first on the basis of square meters of space occupied. • Personnel overhead costs are allocated on the basis of number of employees. • Predetermined overhead rates in the operating departments are calculated on the basis of direct labour-hours.

Answer 1

Hence, the correct answer is the first option i.e, option a. R112 970

Your data is all over place. Let's structure the dat first:

	Building & ground	Personnel	A	B
Overhead costs	54,000	200,000	650,000	800,000
Sq m	1,000	3,000	12,000	15,000
Employees	10	5	45	55
DLH			76,000	92,000

Total sq m used by Personnel, A & B = 3,000 + 12,000 + 15,000 = 30,000

Allocation rate = Overhead cost of Building & ground / total sq m used by Personnel, A & B = 54,000 / 30,000 = $ 1.8 / sq m

Hence, Building & personnel overhead cost allocated to personnel = Allocation rate x Sq m of Personnel = 1.8 x 3,000 = 5,400

hence, total cost of Personnel = Its own overhead cost + allocated cost = 200,000 + 5,400 = 205,400

Total employees in A & B = 45 + 55 = 100

Allocation rate = total cost of Personnel / total employees in A & B = 205,400 / 100 = 2,054

Hence, cost allocated to Department B = Allocation rate x employees in B = 2,054 x 55 =  112,970

Hence, the correct answer is the first option i.e, option a. R112 970