Question

Tank Corp has on support . engineering services and two production departments, Machining and assembling.

The following data relate to the 2017 budget for the Engineering Services? Departmen

Practical capacity		9500 hours
Fixed costs of the Engineering Services Department in the
6500 labor-hour to 9500 labor-hour relevant range	$285,000
Budgeted usage (quantity) of engineering services labor-
hours required to support the productions departments:
Machining department	2,500	hours
Assembly department	5000	hours
Total	75,000	hours
Budgeted variable cost per engineering services labor-hour
in the 6500 labor-hour to 9500 labor-hour relevant range	$30	per hour used
Actual usage (quantity) of engineering services labor-hours
required to support the production departments:
Machining department	2,000	hours
Assembly department	4500	hours
Total	6500	hours

Requirements

1.	Using the? single-rate method, calculate the cost to be allocated to the Machining and Assembly Departments if the allocation rate is based on budgeted costs and budgeted quantity of Engineering Services and allocated based on actual Engineering Services hours used in each department.
2.	Using the? dual-rate method, calculate the cost to be allocated to the Machining and Assembly Departments if? (a) variable costs are allocated based on the budgeted variable cost per hour for actual hours used in each department and? (b) fixed costs are allocated based on budgeted fixed costs per hour and the budgeted number of hours for each department.
3.	Using the? single-rate method, calculate the cost to be allocated to the Machining and Assembly Departments if the allocation rate is based on budgeted costs and practical capacity of Engineering Services Department and allocated based on actual Engineering Services hours used in each department.
4.	Using the? dual-rate method, calculate the cost to be allocated to the Machining and Assembly Departments if? (a) variable costs are allocated based on the budgeted variable cost per hour for actual hours used in each department and? (b) the? fixed-cost allocation rate is based on budgeted costs and practical capacity of Engineering Services Department and allocated based on budgeted Engineering Services hours used in each department.

Answer 1

Solution 1:

Total budgeted labor hours= 7500 hours

Total budgeted overhead for engineering services = Budgeted fixed overhead + Budgeted variable overhead

= $285,000 + 7500*$30 = $510,000

Allocation rate of overhead = Budgeted overhead / Budgeted labor hour = $510,000 / 7500 = $68 per hour

Overhead allocation to Machining department = 2000 * $68 = $136,000

Overhead allocation to assembly department = 4500 * $68 = $306,000

Solution 2:

Variable cost per hour = $30

Budgeted fixed cost per hour = $285,000 / 7500 = $38 per hour

Overhead allocation to machining department = (2000*$30) + (2500 * $38) = $155,000

Overhead allocation to assembly department = (4500 * $30) + (5000*$38) = $325,000

Solution 3:

Total practical capacity of engineering services department = 9500 hours

Total budgeted overhead for engineering services = Budgeted fixed overhead + Budgeted variable overhead

= $285,000 + 9500*$30 = $570,000

Allocation rate of overhead = Budgeted overhead / Practical capacity = $570,000 / 9500 = $60 per hour

Overhead allocation to Machining department = 2000 * $60 = $120,000

Overhead allocation to assembly department = 4500 * $60 = $270,000

Solution 4:

Variable cost per hour = $30

Budgeted fixed cost per hour based on practical capacity = $285,000 / 9500 = $30 per hour

Overhead allocation to machining department = (2000*$30) + (2500 * $30) = $135,000

Overhead allocation to assembly department = (4500 * $30) + (5000*$30) = $285,000