Question

I posted this already and got a terrible response.

Direct Method, Reciprocal Method, Overhead Rates

Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 24 people, and the Assembly Department employs 84 people. Each person in these two departments works 2,070 hours per year. The production-related overhead costs for the Molding Department are budgeted at $203,000, and the Assembly Department costs are budgeted at $98,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $248,000 and $387,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the Engineering Department’s and General Factory Department’s output by the various departments.

	Engineering	General Factory	Molding	Assembly
Engineering hours	—	2,100	2,500	7,500
Square feet	109,980	—	409,370	91,650

For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar.

Required:

1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments for support department costs. Round final answers to the nearest cent.

	Overhead rate per DLH
Molding	$fill in the blank 1
Assembly	$fill in the blank 2

2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments. Round final answers to the nearest cent. Round your intermediate calculations to four decimal places.

	Overhead rate per DLH
Molding	$fill in the blank 3
Assembly	$fill in the blank 4

3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method. (CMA adapted

Answer 1

Part 1
	Engineering	General Factory	Molding	Assembly
Department Cost	248000	387000	203000	98000
Allocation of:
Engineering	-248000		62000	186000
			248000*2500/10000	248000*7500/10000
Gen Factory		-387000	316207	70793
			387000*(409370 / (409370 + 91650))	387000*(91650 / (409370 + 91650))
Total Overhead cost	0	0	581207	354793
Direct Labor Hours			2070*24 = 49680	2070 * 84 = 173880
Overhead Rate per DLH			11.70	2.04
Part 2
	Engineering	General Factory	Molding	Assembly
Engineering Hours		0.17355	0.20661	0.61983
Square Feet	0.18		0.67	0.15
Equation:
E=	248000+0.18GF
GF=	387000+0.17355E
E=	248000+0.18(387000+0.17355E)
E=	248000+69660+0.03124E
1E-0.03124E =	317660
0.9688E=	317660
E=	317660/0.9688 = $327890
GF=	387000+0.17355(327890)
GF=	443905
		Engineering	General Factory	Molding	Assembly
Department Cost		248000	387000	203000	98000
Allocation of:
Engineering		-327890	56907	67746	203238
Gen Factory		79903	-443905	297416	66586
Total Overhead cost	R/off	0	0	568162	367823
Direct Labor Hours				49680	173880
Overhead Rate per DLH				11.44	2.12

3. .

Reciprcal method ofallocation is accurate mehod of alocation, it keep the reciprocal rlation ship between support department. But it is generally not eas to calculat.

However, Direct method is simple to use.