Please solve this with all steps shown Celestial Artistry Company is developing
ID: 2391401 • Letter: P
Question
Please solve this with all steps shown
Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours for its two production departments, Etching and Finishing. The Etching Department employs 20 people and the Finishing Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Etching Department are budgeted at $200,000, and the Finishing Department costs are budgeted at $320,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $48,000 and $250,000, respectively. The production departments’ overhead rates cannot be determined until the service departments’ costs are allocated. The following schedule reflects the use of the Maintenance Department’s and Computing Department’s output by the various departments.
1-a. Use the direct method to allocate service department costs.
1-b. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
Using Department Service Department Maintenance Computing Etching Finishing Maintenance (maintenance hours) 0 1,000 1,000 8,000 Computing (minutes) 240,000 0 840,000 120,000Explanation / Answer
Working Notes :
Production departments
Production departments
Etching
Finishing
Maintenance
Computing
A
persons
20
80
B
Hours worked per person in year
2000
2000
Total labour hours(A X B )
40000
160000
overhead costs
$ 2,00,000
$ 3,20,000
$ 48,000
$ 2,50,000
Allocation of service departments costs
Service department
Basis
Overhead costs
Etching
Finishing
Maintenance(A)
Maintenance hours(only production departments)
(48000 x 1000/9000)
(48000 x 8000/9000)
$ 5,333.33
$ 42,666.67
Computing(B)
Minutes(only production departments)
(250000 x 840000/960000)
(250000*120000/960000)
$ 2,18,750.00
$ 31,250.00
Total (A+B)
$ 2,24,083.33
$ 73,916.67
1.b.ans
Overhead rates per direct labour hour
Particulars
Production departments
Overhead cost (direct cost)(A)
$ 2,00,000
$ 3,20,000
Overhead cost (allocated from service departments)(B)
$ 2,24,083.33
$ 73,916.67
Total overhead costs(A+B)= C
$ 4,24,083.33
$ 3,93,916.67
Total Labour hours=D
40000
160000
Overhead rate per direct labour hour(E=C/D)
$ 10.60
$ 2.46
Production departments
Production departments
Etching
Finishing
Maintenance
Computing
A
persons
20
80
B
Hours worked per person in year
2000
2000
Total labour hours(A X B )
40000
160000
overhead costs
$ 2,00,000
$ 3,20,000
$ 48,000
$ 2,50,000