Sarah Corp. is a manufacturing firm which has two service departments, General plant administration and Storeroom,...

Sarah Corp. is a manufacturing firm which has two service departments, General plant administration and Storeroom, and two production departments, Machining and Assembly. The General plant administration Department costs of $100,000 are allocated on the basis of indirect labor hours. The Storeroom Department costs of $25,000 are allocated based on the number of requisitions. The costs of production departments, Machining and Assembly, are $560,000 and $450,000, respectively.
Data on overhead costs, and information about the indirect labor hours and number of requisitions given as percentages (e.g., 13% is shown as 0.13), are as follows:

Service Departments		production Departments
	General plant administration Department	Storeroom Department	Machining Department	Assembly Department
Overhead costs:	$100,000	$25,000	$560,000	$450,000
indirect labor hours (percent)	0.02	0.08	0.28	0.62
number of requisitions (percent)	0.21	0.10	0.37	0.32

Overhead rates are established for each of the production departments. The Machining Department allocates overhead based upon machining hours and the Assembly Department allocates overhead based upon assembly direct labor hours. The planned levels are 7,000 machining hours and 18,600 assembly direct labor hours.

Allocate costs to the production departments using the direct method, then find the overhead rates for the Machining and Assembly departments.

Solutions

Expert Solution

Allocation using Direct Method

	Service Departments		production Departments
	General plant administration Department	Storeroom Department	Machining Department	Assembly Department
Overhead costs	$100,000	$25,000	$560,000	$450,000
Allocation:
General Plant (0.28 + 0.62 = 0.9)	($100,000)		$31,111	$68,889
Storeroom Department (0.37 + 0.32 = 0.69)		($25,000)	$13,406	$11,594
Total cost after allocation	$0	$0	$604,517	$530,483

--Working

	Service Departments		production Departments
	General plant administration Department	Storeroom Department	Machining Department	Assembly Department
Overhead costs	100000	25000	560000	450000
Allocation:
General Plant (0.28 + 0.62 = 0.9)	-100000		=100000*0.28/0.9	=100000*0.62/0.9
Storeroom Department (0.37 + 0.32 = 0.69)		-25000	=25000*0.37/0.69	=25000*0.32/0.69

Overhead rate calculation

		Machining Department	Assembly Department
A	Total cost after allocation	$604,517	$530,483
B	Allocation base	7000	18600
C = A/B	Overhead rates	$86.36 per machine hour	$28.52 per direct labor hours

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Kinga Corp. is a manufacturing firm which has two service departments, Maintenance and Engineering, and two...

Kinga Corp. is a manufacturing firm which has two service departments, Maintenance and Engineering, and two production departments, Assembly and Painting. The Maintenance Department costs of $50,000 are allocated on the basis of square feet. The Engineering Department costs of $90,000 are allocated based on the engineering hours. The costs of production departments, Assembly and Painting, are $544,000 and $258,000, respectively. Data on overhead costs, square feet and engineering hours, are as follows: Service Departments production Departments Maintenance Department...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits and Loans). A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows. Administration Communications Facilities Deposits Loans Direct costs $ 210,000 $ 320,000 $ 253,000 $ 8,220,000 $ 4,600,000 Employee hours 20,500 34,000 21,000 480,000 365,000 Number of employees 9 15 7 230 160 Square footage occupied 5,100 13,300 5,800...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits and Loans). A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows. Administration Communications Facilities Deposits Loans Direct costs $ 240,000 $ 330,000 $ 260,000 $ 7,890,000 $ 5,400,000 Employee hours 21,000 37,000 20,500 476,000 334,000 Number of employees 7 10 6 210 130 Square footage occupied 5,300 13,400 5,100...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits...

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits and Loans). A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows: Administration Communications Facilities Deposits Loans Direct costs $ 240,000 $ 300,000 $ 256,000 $ 8,170,000 $ 4,800,000 Employee hours 23,000 34,000 23,000 420,000 367,000 Number of employees 9 17 4 230 160 Square footage occupied 4,500 14,300 5,500...

Paul Corp. is a retailing firm which has two service departments, Human resources and Information systems,...

Paul Corp. is a retailing firm which has two service departments, Human resources and Information systems, and two operating departments, Corporate sales and Consumer sales. The Human resources Department costs of $100,000 are allocated on the basis of number of employees. The Information systems Department costs of $150,000 are allocated based on the processing time. The costs of operating departments, Corporate sales and Consumer sales, are $528,000 and $222,000, respectively. Data on overhead costs, and information about the number of...

HSU Corporation has two service departments, Maintenance and Administration, and two producing departments A and B....

HSU Corporation has two service departments, Maintenance and Administration, and two producing departments A and B. The direct costs of each department for the last year is as follows: Administration $ 80,000 Maintenance 60,000 Department A 5,000 Department B 20,000 Information on the proportion of services supplied and used is: User Departments Administration Maintenance Dept. A Dept. B Administration 10% 60% 30% Maintenance 30% 20% 50% Using the reciprocal method of service department cost allocation Administration costs allocated to Department B is: a. $24,000...

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows. Administration Accounting Domestic International Employees – 21 46 33 Transactions 35,000 – 18,000 72,000 Department direct costs $ 361,000 $ 142,000 $ 950,000 $ 3,680,000 Required: a. Allocate the cost of the service departments to the operating...

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: Administration Accounting Domestic International Employees – 28 36 36 Transactions 38,000 – 20,000 80,000 Department direct costs $ 363,000 $ 141,000 $ 955,000 $ 3,750,000 Allocate the cost of the service departments to the operating departments using...

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows. Administration Accounting Domestic International Employees — 25 15 60 Transactions 50,000 — 10,000 40,000 Department direct costs $ 58,000 $ 24,500 $ 159,750 $ 597,000 BluStar estimates that the cost structure in its operations is as follows....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows. Administration Accounting Domestic International Employees – 30 40 30 Transactions 36,000 – 19,000 76,000 Dept direct costs $ 359,000 $ 146,000 $ 930,000 $ 3,720,000 Required:c. Allocate the cost of...

Subjects