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Direct Method Eilers Company has two producing departments and two support departments. The following budgeted data pertain...

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Question

Accounting

Direct Method

Eilers Company has two producing departments and two supportdepartments. The following budgeted data pertain to these fourdepartments:

Support DepartmentsProducing Departments
General FactoryReceivingAssemblyFinishing
Direct overhead$470,000$180,000$48,000$76,000
Square footage—2,0004,0004,000
Number of receiving orders370—1,6001,500
Direct labor hours——26,00050,000

The company has decided to simplify its method of allocatingsupport service costs by switching to the direct method.

Required:

1. Allocate the costs of the supportdepartments to the producing departments using the direct method.Round allocation ratios to four significant digits. Round allocatedcosts to the nearest dollar. Use the rounded values for subsequentcalculations.

Allocation ratios:

AssemblyFinishing
Square footage
Number of receiving orders
Allocations:
AssemblyFinishing
General Factory$$
Receiving
Direct costs
Total$$

2. Using direct labor hours, computedepartmental overhead rates. (Round to the nearest cent.)

Overhead Rate
Assemblyper direct labor hour
Finishingper direct labor hour

Answer & Explanation Solved by verified expert
3.6 Ratings (374 Votes)

  • All working forms part of the answer
  • Requirement 1

Assembly

Finishing

Square footage

0.5000 [ 4000/(4000 + 4000)]

0.5000 [ 4000/(4000 + 4000)]

Number of receiving orders

0.5161 [1600/(1600 + 1500)]

0.4839 [1500/(1600 +1500)]

  • Requirement 2

Allocations

Assembly

Finishing

General Factory

$235,000

$235,000

Receiving

$92,898

$87,102

Direct costs

$48,000

$76,000

Total

$375,898

$398,102

--Working

Allocations

Assembly

Finishing

General Factory

=470000*0.5

=470000*0.5

Receiving

=180000*0.5161

=180000*0.4839

Direct costs

48000

76000

  • Requriement 3

Total Cost after allocation

no. of direct labor hours

Overhead Rate

Assembly

$375,898

26000

$                 14.46

per direct labor hour

Finishing

$398,102

50000

$                   7.96

per direct labor hour

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