Question

Direct Method and Overhead Rates

Jasmine Company manufactures both pesticide and liquid fertilizer, with each product manufactured in separate departments. Three support departments support the production departments: 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	$80,000	$316,000	$165,000	$78,500	$107,400
Square feet	1,500	—	1,500	4,200	4,800
Machine hours	—	1,403	1,345	24,000	8,000
Purchase orders	20	40	7	120	60

The company does not break overhead into fixed and variable components. The bases for allocation 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. If required, round your allocation ratios to four decimal places and round allocated costs to the nearest dollar and use the rounded values for the subsequent calculations.

Cost assignment:

	Pesticide	Liquid Fertilizer
Direct costs	$	$
Power
General Factory
Purchasing
Total	$	$

2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

	Departmental overhead rates
Pesticide	$ per machine hour
Liquid Fertilizer	$ per machine hour

Answer 1

Answers

• Requirement 1

	Pesticide	Liquid Fertilizer
Direct costs	$78,500	$107,400
Power	$60,000	$20,000
General Factory	$147,477	$168,523
Purchasing	$110,006	$54,995
Total	$395,983	$350,917

--Working

	Pesticide	Liquid Fertilizer
Direct costs	=+F15968	=+G15968
Power	=80000*0.75	=80000*0.25
General Factory	=316000*0.4667	=316000*0.5333
Purchasing	=165000*0.6667	=165000*0.3333

>ratios

	Pesticide	Liquid	Total
Square feet	4,200	4,800	9,000
Ratio for allocation	0.4667	0.5333
Machine hours	24,000	8,000	32,000
Ratio for allocation	0.7500	0.2500
Purchase orders	120	60	180
Ratio for allocation	0.6667	0.3333

• Requirement 2

	Departmental Overhead rate
Pesticide	$                                16.50	per machine hour
Liquid Fertilizer	$                                43.86	per machine hour

--Working

	Total Cost	Total machine hours	Departmental Overhead rate
Pesticide	$395,983	24,000	$                                16.50	per machine hour
Liquid Fertilizer	$350,917	8,000	$                                43.86	per machine hour