Question

Chapter 7 Allocating Costs of S wart Departments and Joint Products Exercise 7.22 Reciprocal Method alers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments: OBJECTIVE Support Departments General Factory Receiving S400,000 $160,000 Direct overhead Square footage Number of receiving orders Direct labor hours Producing Departments Assembly Finishing S43,000 $74,000 5.400 5,400 1,680 1,020 25,000 40.000 2,700 300 Required: Allocate the overhead costs of the support departments to the producing departments using he reciprocal method. (Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar.) Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.) che Exercise 7.23 Direct Method Refer to the data in Exercise 7.22. The company has decided to simplify its method of allocating support service costs by switching to the direct method. OBJECTIVE 3 Required: Fac- nts: 1. Allocate the costs of the support departments to the producing departments using the direct method. (Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar.) 2. Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.) 191 OBJECTIVE 3 Exercise 7.24 Sequential Method Refer to the data in Exercise 7.22. The support departments are ranked in order of highest cost to lowest cost. Required: oca- 2. Using dire Allocate the costs of the support departments using the sequential method. (Round alloca- won ratios to four significant digits. Round allocated costs to the nearest dollar.) mmg direct labor hours, compute departmental overhead rates. (Round to the nearest cent.) ake F

Answer 1

Answer-7.22-

1).

Allocation	General Factory	Receiving	Assembly	Finishing
Square Footage	-	0.2	0.4	0.4
No. of Receiving Orders	0.1	-	0,56	0,34

Receiving Orders = 160000 + 0.2 * (400000 + 0.1)

Receiving Orders = 160000 + 80000 + 0.02

Receiving Orders (1 - 0.02) = 240000

Receiving Orders = 240000/0.98 = $244898

Square Footage = $400000 + 0.1 (Receiving Orders)

Square Footage = $400000 + 0.1 ($244898)

Square Footage = $424490

Allocations :-

	General Factory	Receiving	Assembly	Finishing
Direct Overhead	$400000	$160000	$43000	$74000
Square Footage	($424490)	$84898	$169796	$169796
No. of Receiving Orders	$24490	($244898)	$137143	$83265
Total	$0	$0	$349939	$327061

2).

Assembly	($349939/25000H) = $14 per Direct Labor Hour
Finishing	($327061/40000H) = $8 per Direct Labor Hour