Please provide the solution to Chapter 17, Problem 24Pin the Tenth Edition of Ma
ID: 2492295 • Letter: P
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Please provide the solution to Chapter 17, Problem 24Pin the Tenth Edition of Managerial Accounting by Hilton and Paltt
Glass Creations Company is developing departmental overhead rates based on direct-labor hours for its two production departments, Etching and Finishing. The Etching Department employs 20 people and the Finishing Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Etching Department are budgeted at $400,000, and the Finishing Department costs are budgeted at $640,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service depart ments have budgeted costs of $96,000 and $500,000, respectively. The production departments' over- head rates cannot be determined until the service departments' costs are allocated. The following schedule reflects the use of the Maintenance Department's and Computing Department's output by the various departments Problem 17-24 Service Department Cost Allocation; Overhead Rates (L0 17-1,17-3) '1. Service department costs allocated to Etching $448,167 2. Service department costs allocated to Etching $371,778 Using Department Etching 1,000 840,000 Finishing 8,000 120,000 Maintenance Service Department Maintenance (maintenance hours) .. Computing (minutes" Computing 1,000 240,000 Required 1. Use the direct method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department Use the step-down method to allocate service department costs. Allocate the Computing Depart ment's costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department. 2.Explanation / Answer
Solution: (a) Direct Allocation Method: Calculation of Percentage of distribution: Departments Etching Finishing Total Maintenance Maintenance Hours 1000 8000 9000 % of service 11% 89% 100.00% Comuting Minutes 840000 120000 960000 % of service 88% 12% 100% Statement Showing Overhead rates Per direct labour hour Production Departments Service Departments Particulars Amount Basis Ratio Etching Finishing Maintainance Comuting Budgeted Cost 1636000 400000 640000 96000 500000 Overheads of Maintainance Department distributed 96000 Maintenance Hours 11:89 10666 85334 -96000 - Overheads of Computing Department distributed 500000 Minutes 88:12 440000 60000 - -500000 Total Overheads 850666 785334 0 0 Total Direct Labour Hours 40000 160000 (20*2000) (80*2000) Overhead rate per direct labour hour 21.27 4.91 Note: In direct allocation method Service provided by a service department to another service department is ignored. (b)Step Down Method Calculation of Percentage of distribution Departments Etching Finishing Maintenance Comuting Total Comuting Minutes 840000 120000 240000 0 1200000 % of service 70% 10% 20% 0% 100% Maintenance Maintenance Hours 1000 8000 - - 9000 % of service 11% 89% - - 100.00% Statement Showing Overhead rates Per direct labour hour Production Departments Service Departments Particulars Amount Basis Ratio Etching Finishing Maintainance Comuting Budgeted Cost 1636000 400000 640000 96000 500000 Overheads of Computing Department distributed 500000 Minutes 70:10:20 350000 50000 100000 -500000 Overheads of Maintenenace Department distributed 196000 Maintenance hours 11:89 21778 174222 -196000 Total Overheads 771778 864222 0 0 Total Direct Labour Hours 40000 160000 (20*2000) (80*2000) Overhead rate per direct labour hour 19.29 5.40 Note: In Step Down method overheads of service departments will be deistributed amoug production and service departments normally, but no distribution will be done to the service department whose factory overhead has already being distributed Percentages are rounded off to the nearest decimal
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