Revised Prob 17-26 Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours for its two...

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Accounting

Revised Prob 17-26
Celestial Artistry Company is developing departmental overheadrates based on direct-labor hours
for its two production departments, Finishing and Etching. TheFinishing Department employs
120 people and the Etching Department employs 60 people. Eachperson in these two departments
works 1,500 hours per year. The production-related overheadcosts for the Finishing Department are
budgeted at $330,000, and the Etching Department costs arebudgeted at $280,000. Two service
departments, Maintenance and Computing, directly support thetwo production departments. These
service departments have budgeted costs of $36,000 and$310,000, respectively. The production
departments' overhead rates cannot be determined until theservice departments' costs are allocated.
The following schedule reflects the use of the MaintenanceDepartment's and Computing Department's
output by the various departments.
Using Department
Service Department Maintenance Computing Finishing Etching
Maintenance (maintenance hours) 0 2,000 9,000 3,000
Computing (minutes) 180,000 0 130,000 620,000
Required:
1 Use the direct method to allocate service department costs.Calculate the overhead rates per direct-labor
hour for the Finishing Department and the EtchingDepartment.
2 Use the step-down method to allocate service department costs.Allocate the Computing department's
costs first. Calculate the overhead rates per direct-labor hourfor the Finishing Department
and the Etching Department.

Answer & Explanation Solved by verified expert

3.9 Ratings (418 Votes)

Finishing Etching Number of people 120 60 Multiply hours per year 1500 1500 Directlabor hours 180000 90000 Part 1 Direct method Department Computing Maintenance Finishing Etching Direct overhead 310000 36000 330000 280000 Allocated Computing In Proportion of 130000 620000 See Answer

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Revised Prob 17-26

	Celestial Artistry Company is developing departmental overheadrates based on direct-labor hours
	for its two production departments, Finishing and Etching. TheFinishing Department employs
	120 people and the Etching Department employs 60 people. Eachperson in these two departments
	works 1,500 hours per year. The production-related overheadcosts for the Finishing Department are
	budgeted at $330,000, and the Etching Department costs arebudgeted at $280,000. Two service
	departments, Maintenance and Computing, directly support thetwo production departments. These
	service departments have budgeted costs of $36,000 and$310,000, respectively. The production
	departments' overhead rates cannot be determined until theservice departments' costs are allocated.
	The following schedule reflects the use of the MaintenanceDepartment's and Computing Department's
	output by the various departments.

			Using Department
	Service Department		Maintenance	Computing	Finishing	Etching
	Maintenance (maintenance hours)		0	2,000	9,000	3,000
	Computing (minutes)		180,000	0	130,000	620,000

	Required:
	1	Use the direct method to allocate service department costs.Calculate the overhead rates per direct-labor
		hour for the Finishing Department and the EtchingDepartment.
	2	Use the step-down method to allocate service department costs.Allocate the Computing department's
		costs first. Calculate the overhead rates per direct-labor hourfor the Finishing Department
		and the Etching Department.