3. The four - person Data Processing Department of Cuilla Co. wants to update it
ID: 2445539 • Letter: 3
Question
3. The four - person Data Processing Department of Cuilla Co. wants to update its method of accounting for overhead. The department incurs $150,000 of total overhead annually. In the past, computer usage hours (CUH) were the basis for allocating overhead. Last year, 50,000 CUHs were Incurred. The department has determined It has 2 primary functions: technical support and installations. Further analysis has shown that the employees spend 75% of their time doing technical support and 25% of their time installing new hardware and software. Required: a. Determine the overhead application rate based on past experience. b. Determine the amount of overhead that would be allocated to technical support and to installations using the new system. c. The department has decided to allocate departmental costs for technical support using 50,000 computer usage hours, and for installation using 2,500 labour hours. One departmental project required 200 technical support hours amd 140 installation hours.Explanation / Answer
a.
Calculation of overhead application rate based on past experience:
Total overhead
$150,000
Total CUH
50000
Overhead application rate = 150000/ 50000
$ 3.00
Per CUH
b.
Calculation of amount of allocated overhead using new system:
Technical Support
Installation
Employee time
75%
25%
Allocated overhead =
$ 112,500
$ 37,500
(150000*75%)
(150000*25%)
c.
Calculation of cost to be charged to project under old method:
Total CUH required by the project (200+140)
340
CUH
Overhead application rate
$ 3.00
Per CUH
Cost to be charged to project under old method = 340*3
$ 1,020.00
Calculation of cost to be charged to project under New method:
Technical Support
Installation
Overhead (A)
$ 112,500
$ 37,500
Allocation basis (B)
50000
2500
CUH
Labor Hours
Overhead rate = C =A/B
$ 2.25
$ 15.00
Per CUH
Per Labor Hour
Hours required for project (D)
200
140
Cost Allocated = C*D
$ 450.00
$ 2,100.00
Cost to be charged to project under New method = 450+2100 = $2550
a.
Calculation of overhead application rate based on past experience:
Total overhead
$150,000
Total CUH
50000
Overhead application rate = 150000/ 50000
$ 3.00
Per CUH
b.
Calculation of amount of allocated overhead using new system:
Technical Support
Installation
Employee time
75%
25%
Allocated overhead =
$ 112,500
$ 37,500
(150000*75%)
(150000*25%)
c.
Calculation of cost to be charged to project under old method:
Total CUH required by the project (200+140)
340
CUH
Overhead application rate
$ 3.00
Per CUH
Cost to be charged to project under old method = 340*3
$ 1,020.00
Calculation of cost to be charged to project under New method:
Technical Support
Installation
Overhead (A)
$ 112,500
$ 37,500
Allocation basis (B)
50000
2500
CUH
Labor Hours
Overhead rate = C =A/B
$ 2.25
$ 15.00
Per CUH
Per Labor Hour
Hours required for project (D)
200
140
Cost Allocated = C*D
$ 450.00
$ 2,100.00
Cost to be charged to project under New method = 450+2100 = $2550
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