Question

Service Department Cost Allocation Presented below are certain operating data for the four depart- ments of Tally Manufacturing Company. Service Production 1 2 1 2 $60,000 $72,000 Total manufacturing overhead costs either identifiable with or allocated to each department .... Square feet of factory floor space. Number of factory workers ... Planned direct labor hours for the year $90,000 40,000 50 20,000 $98,000 80,000 10 30,000 Allocate, to the two production departments, the costs of service departments 1 and 2, using factory floor space and number of workers, respectively, as bases. What is the apparent overhead rate for each production department if planned direct labor hours are the overhead application base?

Answer 1

Solution :

(1) OH Allocation to Production Department :

Particulars	Service Department	Production Department
1	2	1	2
Service Department Cost Before Allocation	$ 60,000	$ 72,000
Allocation :
Service Department 1 (4:8)	($ 60,000)		$ 20,000	$ 40,000
Service Department 2 (5:1)		($ 72,000)	$ 60,000	$ 12,000
Total Overhead Allocated			$ 80,000	$ 52,000

(2) Overhead Rate

Particulars	Production Department
1	2
(a) Department Cost	$ 90,000	$ 98,000
(b) Allocated Service Department 1OH	$ 20,000	$ 40,000
(c) Allocated Service Department 2 OH	$ 60,000	$ 12,000
(d) Total Overhead (a + b + c)	$ 170,000	$ 150,000
(e) Direct Labor Hour	20,000	30,000
(f) Overhead Rate (d / e)	$ 8.50 per DLH	$ 5.00 per DLH

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