Question

Service Department Cost Allocation Presented below are certain operating data for the four departments of Modern Manufacturing Company.
Service Production
1 2 1 2
Total manufacturing overhead
costs either identifiable with
or allocated to each department $45,000 $60,000 $55,000 $116,000
Square feet of factory
floor space $90,000 $45,000
Number of factory workers 20 60
Planned direct labor hours for the year 25,000 32,000
Allocate, to the two production departments, the costs of service departments 1 and 2, using factory floor space and number of workers, respectively, as bases. Do not round bases when calculating reallocations of service departments.
Production
Departments 1 2
Identifiable and allocated overhead $55,000 $116,000
Allocation of service departments:
Dept. 1: Factory floor space $30,000 $15,000
Dept. 2: Number of factory workers $15,000 $45,000
Total manufacturing overhead $100,000 $176,000
What is the apparent overhead rate for each production department if planned direct labor hours are overhead application base?

Answer 1

Answer:

1.                                                                  Production

                                                                     1               2

Identifiable and                                     $55,000   $116,000

Allocated Overhead  

Reallocation of Service Department

Department 1                                         $30,000   $15,000

Department 2                                        $15,000    $45,000

Total Manufacturing Overhead         $100,000  $176,000

                                    Workings

                                                         Production

                                                     1                        2

Identifiable and                    $55,000             $116,000

Allocated Overhead  

Reallocation of Service

Department

Dept 1                             45,000*90,000   45,000*45,000

                                            135,000                135,000

Dept 2                                60,000*20         60,000 * 60

                                                 80                         80

Total Manufacturing      $100,000                $176,000        

Overhead

2. Allocated Based on Labor hours

Production 1 = $100,000 / 25,000 = $4 per direct labor hour

Production 2 = $176,000 / 32,000 = $5.5 per direct labor hour