The Southern Wind Company has prepared department overhead budgets for budgeted-

Question

The Southern Wind Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows EEB (Click the icon to view the department overhead budgets.) Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: (Click the icon to view the data.) E Read the requirements Requirement 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate Begin by selecting the allocation base for each support department. Support Department Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom Allocation Base

Explanation / Answer

Answer 1. Costs Allocation Base Allocation Rate Buildings & Grounds        24,000.00       200,000.00 sq. feet of Floor space                     0.12 per sq. feet Personnel          2,000.00               200.00 no. of employees                   10.00 per employee General Plant & Admin.        12,000.00         15,000.00 Manf. Lab Hours                     0.80 per manf. Lab. Hrs Cafeteria Operating Loss          2,635.00               155.00 no. of employees                   17.00 per employee Storeroom          6,000.00           3,000.00 No. of requisition                     2.00 per requisition Alloation of Overhead Under Step-Down Method Buildings & Grounds Personnel General Plant & Admin. Cafeteria Operating Loss Storeroom Machining   Assembly Budgeted Costs              24,000                 1,880                 10,160                      745                4,945               34,700              50,000 Buildings & Grounds           (24,000)                     120                   1,440                      240                   120                 4,320              17,760 Personnel                       -                 (2,000)                       400                         50                      50                     600                    900 General Plant & Admin.                       -                          -                 (12,000)                   1,600                   800                 4,000                5,600 Cafeteria Operating Loss                       -                          -                            -                  (2,635)                      85                 1,020                1,530 Storeroom             (6,000)                 4,000                2,000 Total Cost allocated                       -                          -                            -                            -                         -                 48,640              77,790 Direct Manufacturing Labor Hours                 6,000                6,000 Overhead Rate per Direct Manf. Labor hour                    8.11                12.97 Answer 2. Costs Allocation Base Allocation Rate Buildings & Grounds        24,000.00       184,000.00 sq. feet of Floor space                     0.13 per sq. feet Personnel          1,880.00               150.00 no. of employees                   12.53 per employee General Plant & Admin.        10,160.00         12,000.00 Manf. Lab Hours                     0.85 per manf. Lab. Hrs Cafeteria Operating Loss              745.00               150.00 no. of employees                     4.97 per employee Storeroom          4,945.00           3,000.00 No. of requisition                     1.65 per requisition Alloation of Overhead Under Direct Method Buildings & Grounds Personnel General Plant & Admin. Cafeteria Operating Loss Storeroom Machining   Assembly Budgeted Costs              24,000                 1,880                 10,160                      745                4,945               34,700              50,000 Buildings & Grounds           (24,000)                 4,696              19,304 Personnel                       -                 (1,880)                     752                1,128 General Plant & Admin.                       -                          -                 (10,160)                 4,233                5,927 Cafeteria Operating Loss                       -                          -                            -                      (745)                     298                    447 Storeroom             (4,945)                 3,297                1,648 Total Cost allocated                       -                          -                            -                            -                         -                 47,976              78,454 Direct Manufacturing Labor Hours                 6,000                6,000 Overhead Rate per Direct Manf. Labor hour                    8.00                13.08 Answer 3. No Details attached for Two Jobs Answer 4. Machining   Assembly Step Down Method Overhead Rate                  8.11                 12.97 Direct Method Overhead Rate                  8.00                 13.08 Difference                  0.11                 (0.11) As per the above data, Machining Department will prefer the Direct Method as it results in lower overhead rate as shown above.

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