Direct Method Eilers Company has two producing departments and two support depar

Question

Direct Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

The company has decided to simplify its method of allocating support service costs by switching to the direct method.

Required:

1. Allocate the costs of the support departments to the producing departments using the direct method. Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar. Use the rounded values for subsequent calculations.

Allocation ratios:

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

Support Departments Producing Departments General Factory Receiving Assembly Finishing Direct overhead $410,000 $190,000 $40,000 $72,000 Square footage — 2,900 5,800 5,800 Number of receiving orders 400 — 1,900 1,150 Direct labor hours — — 25,000 40,000

Explanation / Answer

1. Allocate the costs of the support departments to the producing departments using the direct method.

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

Assembly = (363361/25000) = $14.53 per labour hour

Finishing = (348639/40000) = $8.72 per labour hour

Assembly Finishing Square footage 5800/11600 = 50% 5800/11600 = 50% Number of receiving orders 1900/3050 = 62.2951% 1150/3050 = 37.7049% Allocations Assembly Finishing General factory 205000 205000 Receiving 118361 71639 Direct cost 40000 72000 Total 363361 348639

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