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Problem 48-6 Step-Down Method versus Direct Method; Predetermined Overhead Rates (L04-10, LO4. The Sendai Co., Ltd., of Japan
Required: 1. Allocate service department costs to consuming departments by the step-down method. Then compute predetermined o
w i od, the direct method, and the plantwide method Complete this question by entering your answers in the tabs below Require
UUROU O LULU 14). CHOU, L EUVE HIV UVOU LULU Wu We are job if the overhead rates were developed using the step-down method, t
Machine- Hours 260 Direct Labor- Hours Machining Department Assembly Department Total hours 278 116 Using the overhead rates
Machine- Hours 260 Direct Labor- Hours Machining Department Assembly Department Total hours Using the overhead rates computed
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Answer #1

1) Allocation of Service Dept cost using Step Down Method (Amounts in $)

Factory Administration Custodial Services Personnel Maintenance Machining Assembly
Departmental costs before allocation 819,840 98,337 26,358 170,555 1,126,484 618,226
Allocations:
Factory Administration (based on labor hours) (819,840) 44,520 (819,840*15,900/292,800) 54,040 (480,760*19,300/292,800) 133,280 (480,760*47,600/292,800) 168,000 (480,760*60,000/292,800) 420,000 (480,760*150,000/282,800)
Custodial Services (based on square feet) - (142,857) 11,011 (142,857*7,700/99,900) 17,446 (142,857*12,200/99,900) 85,800 (142,857*60,000/99,900) 28,600 (142,857*20,000/99,900)
Personnel (Based on no. of employees) - - (91,409) 17,119 (91,409*53/283) 29,716 (91,409*92/283) 44,574 (91,409*138/283)
Maintenance (Based on Machine hrs) (338,400) 211,500 (338,400*176.25/282) 126,900 (338,400*105.75/282)
Total Allocated Overheads (a) 0 0 0 0 1,621,500 1,238,300
Allocation Base (b) 176,250 machine hrs 203,000 labor hrs
Predetermined overhead rate (a/b) 9.20 per machine hour 6.10 per labor hr

2) Allocation of Service Dept cost using Direct Method (Amounts in $)

Factory Administration Custodial Services Personnel Maintenance Machining Assembly
Departmental costs before allocation 819,840 98,337 26,358 170,555 1,126,484 618,226
Allocations:
Factory Administration (based on labor hours) (819,840) 234,240 (819,840*60/210) 585,600 (819,840*150/210)
Custodial Services (based on square feet) - (98,337) 73,753 (98,337*60/80) 24,584 (98,337*20/80)
Personnel (Based on no. of employees) - - (26,358) 10,543 (26,358*92/230) 15,815 (26,358*138/230)
Maintenance (Based on Machine hrs) (170,555) 106,597 (170,555*176.25/282) 63,958 (170,555*105.75/282)
Total Allocated Overheads (a) 0 0 0 0 1,551,617 1,308,183
Allocation Base (b) 176,250 machine hrs 203,000 labor hrs
Predetermined overhead rate (a/b) 8.80 per machine hour 6.44 per labor hr

3) Plant wide Overhead rate = Total Overhead costs/Total Direct labor hours

= $2,859,800/321,000 hrs = $8.91 per labor hour

4) Calculation of Overhead Cost (Amounts in $)

Overhead Cost
Step-Down Method 2,904 [(260 MH*$9.20)+(84 LH*$6.10)]
Direct Method 2,829 [(260 MH*$8.80)+(84 LH*$6.44)]
Plantwide Method 1,034 (116 labor hrs*$8.91)
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