Answer:
Answer is given below.
If you face difficulty in understating the answer, see attached file.
Explanation:
Molding Assembly
Employee A 19 75
Hours B 2180 2180
Toal Labor Hours A*B 41420 163500
Engineering Gen Factory Molding Assembly Total
Budgeted Overheads $ 206,000 $ 395,000 $ 198,000 $ 73,000 $872,000
Engineering Hours 2100 2400 7600 $ 12,100
Square Feet 95850 447300 95850 $639,000
Weights for Direct Method
Engineering Hours 24.00% 76.00%
Square Feet 82.35% 17.65%
Weightes for reciperocal
Engineering Hours% 17.36% 19.83% 62.81%
Square Feet% 15.00% 70.00% 15.00%
1. Direct Method Allocation:
Engineering Gen Factory Molding Assembly Total
Budgeted Overheads $ 206,000 $ 395,000 $ 198,000 $ 73,000 $872,000
Engineering $ -206,000 $ 49,440 $ 156,560 $ -
Gen Factory $ -395,000 $ 325,294 $ 69,706 $ -
Total Overhead a $ 572,734 $ 299,266
Direct Labor Hours b 41420 163500
Overhead Per DLH a/b $ 13.83 $ 1.83
1. Reciperocal Method Allocation:
Engineering 206000+0.15Gen Factory
Gen Factory 395000+0.1736Engineering
Engineering 206000+0.15(395000+0.1736Engineering)
Engineering 206000+59250+0.02604Engineering
0.97396 Engineering 265250
Engineering $ 272,342
Gen Factory 395000+0.1736Engineering
Gen Factory 395000+(0.1736*272342)
Gen Factory $ 442,264 R/Off Gap
Engineering Gen Factory Molding Assembly Total
Budgeted Overheads $ 206,000 $ 395,000 $ 198,000 $ 73,000 $872,000
Engineering $ -272,342 $ 47,266 $ 54,018 $ 171,058 $ -
Gen Factory $ 66,340 $ -442,264 $ 309,585 $ 66,340 $ -
Total Overhead a $ 561,603 $ 310,397
Direct Labor Hours b 41420 163500
Overhead Per DLH a/b $ 13.56 $ 1.90
Part -3
The major advantage of reciprocal method is that it fully takes into account the interdepartmental services
and is therefore considered a more accurate method than direct and step method for departmental cost allocation.
