Indirect Cost Allocation: Direct Method Sprint Manufacturing Company has two pro
ID: 2465405 • Letter: I
Question
Indirect Cost Allocation: Direct Method
Sprint Manufacturing Company has two production departments, Melting and Molding. Direct general plant management and plant security costs benefit both production departments. Sprint allocates general plant management costs on the basis of the number of production employees and plant security costs on the basis of space occupied by the production departments. In November, the following overhead costs were recorded:
Melting Department direct overhead $190,000
Molding Department direct overhead 300,000
General plant management 100,000
Plant security 25,000
Other pertinent data follow:
(a) Prepare a schedule allocating general plant management costs and plant security costs to the Melting and Molding Departments.
(b) Determine the total departmental overhead costs for the Melting and Molding Departments.
1. Melting
2. Molding
(c) Assuming the Melting Department uses machine hours and the Molding Department uses direct labor hours to apply overhead to production, calculate the overhead rate for each production department. (Round your answers to two decimal places.)
1. Melting
2. Molding
Melting Molding Number of employees 30 45 Space occupied (square feet) 10,000 30,000 Machine hours 10,000 2,000 Direct labor hours 4,000 20,000Explanation / Answer
(A) ALLOCATION
100000
(30:45)
25000
(1:3)
(C) OVERHEAD RATE FOR MELTING DEPARTMENT ON THE BASIS OF MACHINE HOURS
= TOTAL DEPARTMENTAL O/H COSTS / MACHINE HOURS
= 236250 / 10000
= $ 23.63
OVERHEAD RATE FOR MOLDING DEPARTMENT ON THE BASIS OF LABOUR HOURS
= TOTAL DEPARTMENTAL O/H COSTS / TOTAL LABOUR HOURS
= 378750 / 20000
= $18.94
DEPARTMENT TOTAL MELTING MOLDING DIRECT COST 190000 300000 GENERAL PLANT MANAGEMENT100000
(30:45)
40000 60000 PLANT SECURITY25000
(1:3)
6250 18750 (B) TOTAL DEPARTMENTAL O/H COSTS 236250 378750