Question

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

Factory Administration	$	350,700
Custodial Services		122,425
Personnel		56,830
Maintenance		116,045
Machining—overhead		1,210,800
Assembly—overhead		1,074,200
Total cost	$	2,931,000

The company allocates service department costs to other departments in the order listed below.

Department	Number of Employees	Total Labor- Hours	Square Feet of Space Occupied	Direct Labor- Hours	Machine- Hours
Factory Administration	26	—	7,600	—	—
Custodial Services	13	9,300	8,800	—	—
Personnel	19	17,600	7,000	—	—
Maintenance	52	46,900	12,100	—	—
Machining	80	40,000	70,000	45,000	150,000
Assembly	120	120,000	20,000	231,000	60,000
	310	233,800	125,500	276,000	210,000

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 operating departments using machine-hours as the allocation base in Machining and direct labor-hours as the allocation base in Assembly.

2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in Machining and Assembly.

3. Assume that the company doesn’t bother with allocating service department costs but simply computes a single plantwide overhead rate that divides the total overhead costs (both service department and operating department costs) by the total direct labor-hours. Compute the plantwide overhead rate.

4. Suppose a job requires machine and labor time as follows:

	Machine- Hours		Direct Labor-Hours
Machining Department	270		34
Assembly Department	14		82
Total hours	284		116

Using the overhead rates computed in (1), (2), and (3) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step-down method, the direct method, and the plantwide method.

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Answer 1

Jowtion : Senaid Co., Ltd., of Japan has budgeted costs in its various departments factory. administration Custodial Services Personnet maintenance machining Assembly 122,425 56,830 116,049 Departmental costs before $350,700 anocation 1,210,800 1,074,200 factory administro 3,950 350,700 26,100 70,350 60,000 180,000 tion 8,750 15,125 87,500 25,000 custodial - Service! 0 136,375 18.980 29,200 43,800 Personnel Maintenance To o 157,500 63,000 220,500

Total cost ! after allocation 1,545,000 1386,000 150,000 MM 231,000 DLH VoIome of Cost drivers 810.30 /M2 $6/DLA predetermined loverhead Rate Compulation of auocation base fac fory administration Total factory labouy: hoor is 233,800 administration is 350,700 + 350,700 |233,800 $ $1.50/labour his Custodial Service - ») $ (122,423 +13,950) 767,000 + 12,100 470.000 + 20,000) $125 per unit 122,425 4 13,950 Service Personnel = 7,000 Maintenance - 12,100

* Savuare feet of space occuped maintenance is 12,100 * Saxiome feet of space occupied machining is 20,000 Personnel :- No.of employee's to maintenances iš 52 No. of employees to machining No. of employee's to Assembly is 120 » 92,8780 / (52 +80 +120) >> 365 lemployee Maintenance a) 220,500 (150,000+60,000) * $ 1.05/mH

factory Custodial administration Service Personnel maintenance Machining Assembly po Departmental costs before anocation 350,700 122,225 56,830 116,04 1,210,800 1,014,200 factory 0 1 0 0 87,675 263,025 adminisha custodial Services . tion (350,700) 0. 22,423) 95.219 97,206 Personel o 56.830) O 22,732 34,098 16,025 82,889 / 33,156 maintenance Total costs Volume of allocanon peredelemined Overhead 1,499,3151,431,655 150.000 231.000 $t0 MH plant wi de overhead rale ) 3) Total overhead / Total direct labour houw. = 2931,000/276.000 = $ 10:67 1027

Step down method ) $ 10.30 x 270 M H + 6x 82. OLH : $ 3,273 Direc. Method :- => $ 10 x 270 MH + $ 620 X 82. DLH - $ 3,208 piant wide $ 10.62 1.6 DLM X 7,231.92-