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The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for...

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

Factory Administration $ 766,800
Custodial Services 275,640
Personnel 38,300
Maintenance 55,860
Machining—overhead 922,200
Assembly—overhead 777,800
Total cost $ 2,836,600

The company allocates service department costs to other departments in the order listed below.

Department Number of
Employees		 Total
Labor-
Hours		 Square
Feet of
Space
Occupied		 Direct
Labor-
Hours		 Machine-
Hours
Factory Administration 28 — 14,200 — —
Custodial Services 12 8,000 2,300 — —
Personnel 18 19,400 11,100 — —
Maintenance 51 52,100 19,500 — —
Machining 40 60,000 140,000 101,000 140,000
Assembly 160 180,000 40,000 234,000 40,000
309 319,500 227,100 335,000 180,000


Machining and Assembly are operating departments; the other departments are service departments. Factory Administration is allocated based on labor-hours; Custodial Services based on square feet occupied; Personnel based on number of employees; and Maintenance based on machine-hours.

Required:

1. Allocate service department costs to consuming departments by the step-down method. Then compute predetermined overhead rates in the operating departments using machine-hours as the allocation base in Machining and direct labor-hours as the allocation base in Assembly.

2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in Machining and Assembly.

3. Assume that the company doesn’t bother with allocating service department costs but simply computes a single plantwide overhead rate that divides the total overhead costs (both service department and operating department costs) by the total direct labor-hours. Compute the plantwide overhead rate.

4. Suppose a job requires machine and labor time as follows:

Machine-
Hours		 Direct
Labor-Hours
Machining Department 210 33
Assembly Department 13 80
Total hours 223 113

Using the overhead rates computed in (1), (2), and (3) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step-down method, the direct method, and the plantwide method.

Solutions

Expert Solution

1.

In the Step down method, Service department costs are allocated in Production department and other Service Departments in a sequential process. The sequence adopted by the company is Factory Administration department, Custodial Services department, Personnel depatment and then Maintenance Department.
Allocation with Step Down Method
Service Departments Operating departments Total
Factory Administration Custodial Services Personnel Maintenance Machining Assembly
Budgted Departmental Cost 766800 275640 38300 55860 922200 777800 2836600
Allocation of Factory Administration Department Cost -766800 19200 46560 125040 144000 432000 Working Note 1
0 294840 84860 180900 1066200 1209800
Allocation of Custodial Services Department Cost -294840 15540 27300 196000 56000 Working Note 2
0 100400 208200 1262200 1265800
Allocation of Personnel Department Cost -100400 20400 16000 64000 Working Note 3
0 228600 1278200 1329800
Allocation of Maintenance Department Cost -228600 177800 50800 Working Note 4
Total Overhead Cost 0 1456000 1380600
Predermined Overhead Rates
Machining Department = Overhead Cost/ No. of Machine Hours = 1456000/140000 = $ 10.40 Per Machine Hour
Assembly Department = Overhead Cost/ No. of Direct Labour Hours = 1380600/234000= $ 5.90 Per Direct Labour Hour
Working Note 1
Allocation of Factory Administration Department Cost
Allocation Basis : Labor Hours
Custodial Services Personnel Maintenance Machining Assembly Total
Factory Administration Department Cost $        766,800
No. Of Labour Hours 8000 19400 52100 60000 180000 319500
Per Labour Hour Cost (766800/319500) 2.40
Allocation of Cost (No. of Labour Hours * Per Labour Hour Cost) 19200 46560 125040 144000 432000 766800.00
Working Note 2
Allocation of Custodial Services department’s cost:
Allocation Basis : Square Feet of Space required
Personnel Maintenance Machining Assembly Total
Custodial Service Department Cost $        294,840
Square Feet of Space Occupied 11100 19500 140000 40000 210600
Per Square Feet Cost (294840/210600) 1.40
Allocation of Cost (Space Occupied* Per Square Feet Cost) 15540 27300 196000 56000 294840.00
Working Note 3
Allocation of Personnel Services department’s cost:
Allocation Basis : number of employees
Maintenance Machining Assembly Total
Custodial Service Department Cost $        100,400
number of employees 51 40 160 251
Per employee Cost (100400/251) 400.00
Allocation of Cost (number of employees* Per employee Cost) 20400 16000 64000 100400.00
Working Note 4
Allocation of Maintenance department’s cost:
Allocation Basis : Machine Hours
Machining Assembly Total
Maintenance Department Cost
ekkarill92 answered 2 years ago
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