The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as

Question

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

Machining and Assembly are operating departments; the other departments are service departments. Factory Administration is allocated on the basis of labor-hours; Custodial Services on the basis of square feet occupied; Personnel on the basis of number of employees; and Maintenance on the basis of machine-hours.

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

3. Assume that the company doesn't bother with allocating service department costs but simply computes a single plantwide overhead rate based on total overhead costs (both service department and operating department costs) divided by total direct labor-hours. Compute the plantwide overhead rate. (Round your answer to 2 decimal places.) Plantwide overhead rate per DLH 4. Suppose a job requires machine and labor time as follows: Direct Machine-Hours Labor-Hours Machining Departm Assembly Department 230 15 31 82 ent Total hours 245 113 Compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the stepdown method, the direct method, and the plantwide method. (Round intermediate calculations to 2 decimal places and final calculations to the nearest whole dollar.) Overhead Cost Step-down methood Direct method Plantwide method

Explanation / Answer

Solution:

Assumption: Predetermined overhead rates are computed in the operating departments using a machine-hours basis in Machining and a direct labor-hours basis in Assembly.

1) Allocation of service department costs to consuming departments by the step-down method:

2) Allocation of service department costs to consuming departments by the direct method:

3) Calculation of Plantwide Overhead Rate:

Total Overhead = 604,240 + 104,500 + 56,386 + 201,244 + 1,592,935 + 876,220 = 3,435,525

Total Direct Labor Hrs = 356,000

Plantwide Overhead Rate = 3,435,525/ 356,000

= 9.65 per DLH

4) Calculation of amount of overhead cost that would be assigned to the job if the overhead rates were developed using the stepdown method, the direct method, and the plantwide method:

Factory Administration Custodial Services Personnel Maintenance Machining Assembly Operating Department Costs - - - -    1,592,935       876,220 Costs to be allocated                                 604,240                       104,500        56,386            201,244 - - Allocation: Factory Administration (Basis of Labor Hrs)                               (604,240)                         13,580        27,440              73,220       140,000       350,000 Custodial Services (Basis of square feet occupied) (118,080)        14,400              19,680          60,000          24,000 Personnel (Basis of number of employees) (98,226)              17,976          32,100          48,150 Maintenance (Basis of machine-hours) (312,120)       234,090          78,030 Total Overhead after allocation    2,059,125    1,376,400 Predetermined Overhead Rate              9.50              6.20

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