Betty DeRose, Inc. operates two production departments, molding and assembly, an
ID: 2340364 • Letter: B
Question
Betty DeRose, Inc. operates two production departments, molding and assembly, and two service departments, repair and power. Service department costs are allocated to production departments using a reciprocal two-stage allocation method. Repair department costs are allocated on the basis of repair hours and power department costs are allocated on the basis of kilowatt hours. In the second stage, departmental overhead rates for the two production departments are calculated using direct labor hours as the activity for each department. Information for the four departments is given below: Repair Power Molding Assembly Directly trace overhead $83,200 $160,000 $245,600 $320,000 Repair hours 60,000 8,000 10,000 22,000 Kilowatt hours 160,000 600,000 180,000 60,000 Direct labor hours N/A N/A 80,000 140,000 The company is preparing to bid on a job, job #45, which requires 40 direct labor hours in the molding department and 25 direct labor hours in the assembly department. The direct material and direct labor cost for job #45 is expected to total $311. Calculate the total expected cost of job #45.
Explanation / Answer
Solution:
Service department cost = Direct Cost + Allocated Cost
Repair Department Cost = $83,200 + [160000 / (160000+180000+60000)]* Power Cost
= $83,200 + 0.40*Power Cost
Power Department Cost = $160,000 + [8000 / (8000+10000+22000)]* Repair cost
= $160,000 + 0.20 * repair Cost
Power Cost = $160,000 + 0.20 ($83,200 + 0.40*Power Cost)
Power Cost = $160,000 + $16,640 + 0.08*Power Cost
Power Cost = $176,640 / 0.92 = $192,000
Repair Cost = $83,200 + 0.40*$192,000 = $160,000
From Service Department Cost Allocation - Reciprocal Method Service Department Production Departments Repair Power Molding Assembly Direct charges of department $83,200 $160,000 $245,600 $320,000 Repair (8:10:22) -$160,000 $32,000 $40,000 $88,000 Power (16:18:6) $76,800 -$192,000 $86,400 $28,800 Total $0 $0 $372,000 $436,800Related Questions
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