M20-18. Indirect Cost Allocation: Direct Method Charlie Manufacturing Company ha

Question

M20-18. Indirect Cost Allocation: Direct Method Charlie Manufacturing Company has two production departments, Melting and Molding. Direct gen- eral plant management and plant security costs benefit both production departments. Charlie allocates general plant management costs on the basis of the number of production employees and plant security costs on the basis of space occupied by the production departments. In November, the following over head costs were recorded: Melting Department direct overhead . . . . $350,000 . 180,000 70,000 General plant management Other pertinent data follow: Melting Molding 90 50 Space occupied (square feet).. 4,000 20,000 Required a. Prepare a schedule allocating general plant management costs and plant security costs to the Melting and Molding Departments. Determine ttl osts for he Mcting and Molding Depurtnments c. Assuming the Melting Department uses machine hours and the Molding Department uses hours to apply overhead to production, calculate the overhead rate for each production department.

Explanation / Answer

A) Allocation of general plant management costsplant security costs to the Melting & Molding Departments Melting Department Molding Department Number of production employees                                  50.00                                     90.00 General plant management 180000*50/140 180000*90/140                                64,286                                115,714 Space Occupied                          20,000.00                            80,000.00 Plant Security 70000*20000/100000 70000*80000/100000                          14,000.00                            56,000.00 B)Total Departmental Overhead Costs for the Melting and Molding Departments Melting Department Molding Department Direct Overhead                        350,000.00                          600,000.00 Allocated General plant management                          64,286.00                          115,714.00 Allocated Plant Security                          14,000.00                            56,000.00 Total Departmental Overhead Costs                        428,286.00                          771,714.00 C)Overhead Rate Melting Department Molding Department Total Departmental Overhead Costs(a)                        428,286.00                          771,714.00 Machine Hours(b)                          10,000.00 - Direct Labour hours(c) -                            20,000.00 Machine Hour Rate(a/b) or (a/c)                                  42.83                                     38.59 Here overhead rate for Melting department is computed on the basis of machine hours while for molding department is computed on the basis of direct labour hours.

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