The Central Valley Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:
Support departments: | | |
Building and grounds | $45,000 | |
Personnel | $300 | |
General plant administration | $37,320 | |
Cafeteria operating loss | $970 | |
Storeroom | $9,990 | |
Total for support departments | | $93,580 |
Operating departments: | | |
Machining | $36,000 | |
Assembly | $46,000 | |
Total for operating departments | | $82,600 |
Total for support and operating departments | | $176,180 |
Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:
Department | Direct Manufacturing Labor-Hours | Number of Employees | Square Feet of Floor Space Occupied | Indirect Manufacturing Labor-Hours | Number of Requisitions |
Building and grounds | 0 | 0 | 0 | 0 | 0 |
Personnel (Basis used is number of employees) | 0 | 0 | 2,500 | 0 | 0 |
General plant administration | 0 | 40 | 12,000 | 0 | 0 |
Cafeteria operating loss | 0 | 10 | 5,000 | 3,000 | 0 |
Storeroom | 0 | 5 | 6,000 | 2,000 | 0 |
Machining | 8,000 | 55 | 22,000 | 13,000 | 6,000 |
Assembly | 32,000 | 140 | 202,500 | 26,000 | 4,000 |
Total | 40,000 | 250 | 250,000 | 44,000 | 10,000 |
Required:
(1) Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.
(2) Using the direct method, rework requirement 1.
(3) Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
| Direct Manufacturing Labor-Hours |
| Machining | Assembly |
Job 88 | 17 | 7 |
Job 89 | 9 | 20 |
(4) The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.
What is required: a new solution, for all questions, a review of the outputs, an explanation of all the steps with details for understanding.
The Central Valley Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Management has decided that the most appropriate inventory costs are achieved by using individual depariment overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Required: (1) Using the step-down method, allocate suppont-department costs. Develop overhead rates per direct manufacturing labot-bour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. (2) Using the direct method, rework requirement 1. (3) Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement I and (b) requirement 2 . (4) The company evaluates the performanee of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain
