Question

Reciprocal Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

	Support Departments		Producing Departments
	General Factory	Receiving	Assembly	Finishing
Direct overhead	$500,000	$150,000	$45,000	$75,000
Square footage	—	2,700	5,400	5,400
Number of receiving orders	300	—	1,680	1,020
Direct labor hours	—	—	25,000	40,000

Required:

1. Allocate the overhead costs of the support departments to the producing departments using the reciprocal method. (Round allocation ratios to two decimal places. Round allocated costs to the nearest dollar. If an amount is zero, enter "0".)

Allocation ratios:

	General Factory	Receiving	Assembly	Finishing
Square footage
Number of receiving orders

Allocations:

	General Factory	Receiving	Assembly	Finishing
Direct overhead cost	$	$	$	$
General Factory
Receiving
Total	$	$	$	$

2. Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.)

	Overhead Rate
Assembly	$ per direct labor hour
Finishing	$ per direct labor hour

Answer 1

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ANSWER 1 :

Allocations

	General factory	Receiving	Assembly	Finishing
Square footage	0%	20%	40%	40%
Number of receiving order	10%	0%	56%	34%

Allocations

	General Factory	Receiving	Assembly	Finishing
Direct overhead cost	$5,00,000	$1,50,000	$45,000	$75,000
General Factory	-$5,25,510	$1,05,102	$2,10,204	$2,10,204
Receiving	$25,510	-$2,55,100	$1,42,857	$86,735
Total	$0	$0	$3,98,061	$3,71,939

Working note :

Square footage

Receiving = 2700/(2700+5400+5400) = 20%

Assembly = 5400/(2700+5400+5400) = 40%

Finishing = 5400/(2700+5400+5400) = 40%

Number of receiving order

General factory = 300/(300+1680+1020) = 20%

Assembly = 1680/(300+1680+1020) = 56%

Finishing = 1020/(300+1680+1020) = 34%

Working

Allocations

	General Factory	Receiving	Assembly	Finishing
Direct overhead cost	$5,00,000	$1,50,000	$45,000	$75,000
General factory (20:40:40)	-$5,00,000	$1,00,000	$2,00,000	$2,00,000
	$0	$2,50,000	$2,45,000	$2,75,000
Receiving (10:56:34)	$25,000	-$2,50,000	$1,40,000	$85,000
	$25,000	$0	$3,85,000	$3,60,000
General factory (20:40:40)	-$25,000	$5,000	$10,000	$10,000
	$0	$5,000	$3,95,000	$3,70,000
Receiving (10:56:34)	$500	-$5,000	$2,800	$1,700
	$500	$0	$3,97,800	$3,71,700
General factory (20:40:40)	-$500	$100	$200	$200
	$0	$100	$3,98,000	$3,71,900
Receiving (10:56:34)	$10	-$100	$56	$34
	$10	$0	$3,98,056	$3,71,934
General factory (20:40:40)	-$10	$2	$4	$4
	$0	$2	$3,98,060	$3,71,938
Receiving (10:56:34)	$0	-$2	$1	$1
Total	$0	$0	$3,98,061	$3,71,939

ANSWER 2 :

Assembly = Total cost / Direct labor hour

= $398061 / 25000

= $15.92 per direct labor hour

Finishing = Total cost / Direct labor hour

=$371939 / 40000

= $ 9.298 per direct labour hour

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