6. A manufacturer serving the sea transport industry has five departments. Indir

Question

6. A manufacturer serving the sea transport industry has five departments. Indirect cost allocations for 1 month are detailed below, along with space assigned, direct labor hours, and direct labor costs for each department that directly manufactures radar and sonar equipment. Determine the manufacturing department allocation rates for redistributing the indirect cost allocation for testing and engineering($38,000) to the other departments. Use the following bases to determine the rates: (a) space, and (b) direct labor costs Actual Data for 1 Month Indirect Space. Direct Labor Department Allocation, S Feet Hours Cost.S Housing Subassemblies 45,000 18,000 1,000 103.250 Final assembly 10.000 0,000 600 12460 Testing Engineering 9,000 20,000 10,000 480 31,680 .200 2,000 5,000

Explanation / Answer

Solution (a)

Allocation rate as per space

Allocation rate= total cost / total space used by housing, sub assembly and final assembly

= 38000/(10000+18000+10000)

=38000/38000

= $ 1 per square feet

Solution (B)

Allocation rate per direct labour cost in $

Allocation rate= total cost/ total direct labour cost

=38000/147390

=0.2578 $per direct labour cost

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