Question

OBJECTIVE Exercise 7.20 Direct Method and Overhead Rates Jasmine Company manufactures both pesticide and liquid fertilizer, with each product manus tured in separate departments. Three support departments support the production departmen Power, General Factory, and Purchasing. Budgeted data on the five departments are as follows Support Departments Producing Departments Power General Factory Purchasing Pesticide Liquid Fertilizer Overhead S90.000 $314,000 S167,000 $78.900 S 107.800 Square feet 1.500 1.500 4,200 4.800 Machine hours 1.403 1.345 24,000 8.000 Purchase orders 120 The company does not break overhead into fixed and variable components. The bases for alloca tion are power machine hours, general factory square feet: and purchasing purchase orders Required: 1. Allocate the overhead costs to the producing departments using the direct method. Take allocation ratios out to four significant digits. Round allocated costs to the nearest dollar) 2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.) OBJECTIVE 3 Exercise 7.21 Sequential Method Refer to the data in Exercise 7.20. The company has decided to use the sequential method of allocation instead of the direct method. The support departments are ranked in order of highest cost to lowest cost Required: 1. Allocate the overhead costs to the producing departments using the sequential method. (Take allocation ratios out to four significant digits. Round allocated costs to the nearest dollar. 2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

exercise 7.21 only

Answer 1

Proportion of Driver Used By:

	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Square feet	0.1250		0.1250	0.3500	0.4000
Machine hours				0.7500	0.2500
Purchase orders	0.10			0.6000	0.3000

	Support			Producing
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Direct costs:	$90,000	$314,000	$167,000	$78,900	$107,800
General Factory
(314,000 * .1250)	$39,250	-$39,250
(314,000 * .1250)		-$39,250	$39,250
(314,000 * .3500)		-$109,900		$109,900
(314,000 * .4000)		-$125,600			$125,600
	$129,250	$0	$206,250	$188,800	$233,400
Purchasing
(206,250 * .1000)	$20,625		-$20,625
(206,250 * .6000)			-$123,750	$123,750
(206,250 * .3000)			-$61,875		$61,875
	$149,875	$0	$0	$312,550	$295,275
Power
(149,875 * .7500)	-$112,406			$112,406
(149,875 * .2500)	-$37,469				$37,469
Total after allocation	$0	$0	$0	$424,956	$332,744

　

Departmental OH rates:

Pesticide	424,956/24,000	$17.71
Liquid Fertilizer	332,744/8,000	$41.59