Question
In: Accounting
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 agoRelated Solutions
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