Question

Jefferson Company expects to incur $460,000 in manufacturing overhead costs during 2014. Other budget information is below

	Dept A	Dept B	Dept C
Direct Labor hours	15,000	5,000	20,000
Machine Hours	8,000	10,000	12,000

1. Use direct labor hours as a cost drive to compute the allocation rate: Determine the amount budgeted overhead cost for each department

2. Use Machine hours as a cost driver to compute the allocation . Determine the amount budgeted overhead cost for each department

3. Assume that dept A manufactured a product that required 160 direct labor hours and 85 machine hours. If overhead is allocated based on direct labor hours, how much overhead would be allocated to this product?

4. Assume that dept A manufactured a product that required 160 direct labor hours and 85 machine hours. If overhead is allocated based on machine hours, how much overhead would be allocated to this product?

Answer 1

Calculate requirements as follows: E A 1 Particulars Dept A Dept B Dept C Total overhead 1Direct labor hours 2 460000 20000 15000 5000 230000 Budgted Overhead 172500 57500 4 5 2 Machine hours 8000 10000 12000 6 122666.67 153333.33184000.00 7 Budgted Overhead 8 9 172500 3 Total overhead in Dept A (Labor hour basis) Total hours 10 11 15000 Hours required by product 12 160 13 Overhead allocated 1840 14 4 Total overhead in Dept A (Machine hour basis) 122666.67 15 Total hours 16 8000 Hours required by product 17 85 18 Overhead allocated 1303.333 19

Calculations: A В C D E Dept C 1 Particulars Dept A Dept B Total overhead 31Direct labor hours Budgted Overhead 460000 5000 |=C2/(C3+D3+E3)*15000 =C2/(C3+D3+E3) *D3| =C2/(C3+D3+E3)*E3 20000 15000 4 5 6 2 Machine hours Budgted Overhead 10000 |=C2/(C6+D6+E6)*D6|=C2/(C6+D6+E6)*E6 8000 12000 7 =C2/(C6+D6+E6)*C6 8 9 103 Total overhead in Dept A (Labor hour basis) |Total hours |Hours required by product |Overhead allocated -C4 11 15000 160 12 13 =c10/C11 C12 14 15 4 Total overhead in Dept A (Machine hour basis)-C7 Total hours |Hours required by product Overhead allocated 8000 16 17 85 =C15/ C16*C17 18 19