Problem 4B-6 Step-Down Method versus Direct Method; Predetermined Overhead Rates
ID: 2437716 • Letter: P
Question
Problem 4B-6 Step-Down Method versus Direct Method; Predetermined Overhead Rates [LO4-10, LO4-11 The Sendai Co, Ltd, of Japan has budgeted costs in its various departments as follows for the coming year: 10 points eBook Print References Factory Administration Custodial Services Personnel Maintenance Machining-overhead Assembly-overhead Total cost 605,500 229,926 65,789 324,785 1,697,40 542,200 $3,465,500 The company allocates service department costs to other departments in the order listed below Square Total Feet of Direct Number of Labor- Space Labor- Machine- Department Enployees Hours Occupled Eours Bours Factory Administration Custodial Services Personnel Maintenance Machining Assenbly 27 5,600 9.9006,900 21 60 0 100,000 140,00099,000 280,000 19,6007,700- 53,000 10,500- 120 250,000 40,000 236,000 80,000 20 432,500 210,700335,006 360,000 Machining and Assembly are operating departments, the other departments are service departments. Factory Administration is allocated based on labor-hours; Custodial Services based on square feet occupied; Personnel based on number of employees; and Maintenance based on machine-hours Required: 1. Allocate service department costs to consuming departments by the step-down method. Then compute predetermined overhead rates in the oneratinn denartmente usinn marhine-hnure as the allnratinn hase in Marhininn and direet lahnr.hnsure as the allnratinn Prev 1 of 3E Next >Explanation / Answer
Answer 1. Service Department Cost Allocation Statement Under Step Down Method. Service Operating Factory Administration Custodial Services Personnel Maintenance Machining Assembly Operating Department Costs 1,697,400.00 542,200.00 Costs to be allocated 605,500.00 229,926.00 65,789.00 324,785.00 Allocation: Factory Administration (605,500.00) 13,860.00 27,440.00 74,200.00 140,000.00 350,000.00 Custodial Services (243,786.00) 9,471.00 12,915.00 172,200.00 49,200.00 Personnel (102,700.00) 23,700.00 31,600.00 47,400.00 Maintenance (435,600.00) 338,800.00 96,800.00 Total Overhead after Allocation - - - - 2,380,000.00 1,085,600.00 Predetermined Overhead Rate 8.50 4.60 Allocation of Factory Administration Allocation Rate (Labor Hours) Weighted Base Allocated Cost Custodial Services 9,900.00 2.29% 13,860.00 Personnel 19,600.00 4.53% 27,440.00 Maintenance 53,000.00 12.25% 74,200.00 Machining 100,000.00 23.12% 140,000.00 Assembly 250,000.00 57.80% 350,000.00 Total 432,500.00 100.00% 605,500.00 Allocation of Custodial Services Allocation Rate (sq. feet occupied) Weighted Base Allocated Cost Personnel 7,700.00 3.88% 9,471.00 Maintenance 10,500.00 5.30% 12,915.00 Machining 140,000.00 70.64% 172,200.00 Assembly 40,000.00 20.18% 49,200.00 Total 198,200.00 100.00% 243,786.00 Allocation of Personnel Allocation Rate (no. of employees) Weighted Base Allocated Cost Maintenance 60.00 23.08% 23,700.00 Machining 80.00 30.77% 31,600.00 Assembly 120.00 46.15% 47,400.00 Total 260.00 100.00% 102,700.00 Allocation of Maintenance Allocation Rate (Machine Hrs) Weighted Base Allocated Cost Machining 280,000.00 77.78% 338,800.00 Assembly 80,000.00 22.22% 96,800.00 Total 360,000.00 100.00% 435,600.00 Answer 2. Service Department Cost Allocation Statement Under Direct Method. Service Operating Factory Administration Custodial Services Personnel Maintenance Machining Assembly Operating Department Costs 1,697,400.00 542,200.00 Costs to be allocated 605,500.00 229,926.00 65,789.00 324,785.00 Allocation: Factory Administration (605,500.00) 173,000.00 432,500.00 Custodial Services (229,926.00) 178,831.33 51,094.67 Personnel (65,789.00) 26,315.60 39,473.40 Maintenance (324,785.00) 252,610.56 72,174.44 Total Overhead after Allocation - - - - 2,328,157.49 1,137,442.51 Predetermined Overhead Rate 8.31 4.82 Allocation of Factory Administration Allocation Rate (Labor Hours) Weighted Base Allocated Cost Machining 100,000.00 28.57% 173,000.00 Assembly 250,000.00 71.43% 432,500.00 Total 350,000.00 100.00% 605,500.00 Allocation of Custodial Services Allocation Rate (sq. feet occupied) Weighted Base Allocated Cost Machining 140,000.00 77.78% 178,831.33 Assembly 40,000.00 22.22% 51,094.67 Total 180,000.00 100.00% 229,926.00 Allocation of Personnel Allocation Rate (no. of employees) Weighted Base Allocated Cost Machining 80.00 40.00% 26,315.60 Assembly 120.00 60.00% 39,473.40 Total 200.00 100.00% 65,789.00 Allocation of Maintenance Allocation Rate (Machine Hrs) Weighted Base Allocated Cost Machining 280,000.00 77.78% 252,610.56 Assembly 80,000.00 22.22% 72,174.44 Total 360,000.00 100.00% 324,785.00 Answer 3. Plantwide Overhead Rate = $3,465,600 (Total Overhead) / 335,000 DLH Plantwide Overhead Rate = $10.35 per DLH Answer 4. Machining Assembly Total Overhead Machine Hrs 266 30 Direct Labor Hours 16 80 Step Down Method 2,261.00 368.00 2,629.00 Direct Method 2,211.75 385.57 2,597.32 Plantwide Method 165.52 827.61 993.13