A company is composed of five cost centers. Each month a budget is prepared anti

Question

A company is composed of five cost centers. Each month a budget is prepared anticipating the distribution of overhead costs to the centers. Let Cw be costs incurred within the cost center, such as depreciation, supplies and indirect labor, and let Cm be misc costs. The table shows the initial distribution of all overhead costs to each cost center. Additionally, for each center and month, a schedule of direct labor dollars and hours is matched.

(Hint: Each direct department such as fabrication, assembly, and testing will have indirect labor costs that are organized for the purpose of the department and are included in Cw. Dimensions for the overhead rate in dollard of overhead cost to direct labor hours.)

Make a distribution of engineering and administration costs to the producing departments based on the proportion of direct labor dollars. Find the total overhead costs for the producing departments. Find the overhead rate for the producing departments based on hours.

Cost Center           Cw           Cm         Direct labor, $   Direct Labor, Hours

Fabrication         300,000      10,000       201,600             16,000

Assembly              80,000       5,000          72,960                6,400

Testing                 20,000     40,000         37,440                3,200

Engineering         40,000     90,000

Administration       20,000    10,000

(Please show how the calculations are arrived for cost allocated for each department; Fabrication, Assembly, and Testing)

Explanation / Answer

Answer:

overhead rate = engineering cw = 40000/25600=1.5625

administration:cw=20000/25600=0.78125

Engineering:cm=90000/25600=3.515625

Engineering:cm=10000/25600=0.390625

Particulars Fabrication Assembly Testing Direct labor 201600 72960 37440 Indirect labor cw 300000 80000 20000 cm 10000 5000 40000 Engineering :cw 25000 10000 5000 Engineering :cm 56250 22500 11250 Administration: cw 12812.5 5000 2500 Administration: cw 6250 2500 1250 Total 611912.5 197960 117440 Direct labor hours 16000 6400 3200 overhead rate 38.2445313 30.93125 36.7

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