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A Company has two support departments (Administration and Janitorial) and three producing departments (Fabricating, Assembly, and...

A Company has two support departments (Administration and Janitorial) and three producing departments (Fabricating, Assembly, and Finishing). Costs and activities are as follows:

                                         Administration      Janitorial       Fabricating       Assembly      Finishing

Direct costs........................      $50,000            $30,000         $40,000         $50,000         $25,000

Number of employees.......                                        10                  30                  40                  20

Square feet........................          2,000                                    10,000           28,000           15,000

Direct labor hours..............                                                         5,000             6,000             2,000

Administrative services are allocated based on the number of employees; janitorial services are allocated based on square footage. Overhead rates for the three producing departments are based on direct labor hours.

Required:

Determine the overhead application rates for the producing departments using each of the three allocation methods:

1.   Direct allocation method for the support departments

2.   Step allocation method for the support departments      

3.        Reciprocal allocation method for the support departments

Kindly reply in format in order for me to paste the information and this will greatly appreciated.

Solutions

Expert Solution

Allocation of overheads
a Direct method
Support Departments Production Departments
Administration Janitorial Fabricating Assembly Finishing Total
Direct Costs $50,000 $30,000 $40,000 $50,000 $25,000 $195,000
Administration overhead allocation ($50,000) $16,667 $22,222 $11,111 $0
Janitorial overhead allocation ($30,000) $5,660 $15,849 $8,491 $0
$62,327 $88,071 $44,602 $195,000
Production Departments
Fabricating Assembly Finishing Total
Number of employees 30 40 20 90
Percentage of employees 33.33% 44.44% 22.22%
Square feet 10000 28000 15000 53000
Percentage of floor space 18.8679% 52.8302% 28.3019%
b Step method
Administrative department going first
Support Departments Production Departments
Administration Janitorial Fabricating Assembly Finishing Total
Direct Costs $50,000 $30,000 $40,000 $50,000 $25,000 $195,000
Administration overhead allocation ($50,000) $5,000 $15,000 $20,000 $10,000 $0
Janitorial overhead allocation ($35,000) $6,604 $18,491 $9,906 $0
$61,604 $88,491 $44,906 $195,000
Production Departments
Janitorial Fabricating Assembly Finishing Total
Number of employees 10 30 40 20 100
Percentage of employees 10.00% 30.00% 40.00% 20.00%
Square feet 10000 28000 15000 53000
Percentage of floor space 18.8679% 52.8302% 28.3019%
Janitorial Department going first
Support Departments Production Departments
Administration Janitorial Fabricating Assembly Finishing Total
Direct Costs $50,000 $30,000 $40,000 $50,000 $25,000 $195,000
Janitorial overhead allocation $1,091 ($30,000) $5,455 $15,273 $8,182 $0
Administration overhead allocation ($51,091) $17,030 $22,707 $11,354 $0
$62,485 $87,980 $44,535 $195,000
Production Departments
Administration Fabricating Assembly Finishing Total
Number of employees 30 40 20 90
Percentage of employees 33.33% 44.44% 22.22%
Square feet 2000 10000 28000 15000 55000
Percentage of floor space 4% 18% 51% 27%
c Reciprocal method
Original cost of Support departments
Administration (X) $50,000
Janitorial (Y) $30,000
After getting the share from distribution of Support department
X = $50000 + 4% Y
Y = $30000 + 10% X
By putting the value of Janitorial in equation (1)
X = $50000+4% ($30000 +10%X)
X = $50000+ $1200 + 0.004X
X-0.004X = $51200
0.996 x = $51200
X = $51200/0.996 = $51406
By putting the value of Administration in Equation (2)
Y = $30000 + 10% ($51406)
Y = $30000 + $5140.6
Y = $35141 (rounded off)
Support Departments Production Departments
Administration Janitorial Fabricating Assembly Finishing Total
Direct Costs $50,000 $30,000 $40,000 $50,000 $25,000 $195,000
Administration overhead allocation ($51,406) $5,141 $15,422 $20,562 $10,281 $0
Janitorial overhead allocation 1406 ($35,141) $6,325 $17,922 $9,488 $0
$61,747 $88,484 $44,769 $195,000

ekkarill92 answered 1 year ago
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