The Sendai Co., Ltd., of Japan has budgeted costs in its variousdepartments as follows for the coming year:
| | |
| Factory Administration | $ | 819,840 |
| Custodial Services | | 98,337 |
| Personnel | | 26,358 |
| Maintenance | | 170,555 |
| Machining—overhead | | 1,126,484 |
| Assembly—overhead | | 618,226 |
| Total cost | $ | 2,859,800 |
|
The company allocates service department costs to otherdepartments in the order listed below.
| Department | Number of
Employees | Total
Labor-
Hours | Square
Feet of
Space
Occupied | Direct
Labor-
Hours | Machine-
Hours |
| Factory Administration | 30 | — | 5,300 | — | — |
| Custodial Services | 11 | 15,900 | 10,200 | — | — |
| Personnel | 16 | 19,300 | 7,700 | — | — |
| Maintenance | 53 | 47,600 | 12,200 | — | — |
| Machining | 92 | 60,000 | 60,000 | 118,000 | 176,250 |
| Assembly | 138 | 150,000 | 20,000 | 203,000 | 105,750 |
| 340 | 292,800 | 115,400 | 321,000 | 282,000 |
|
Machining and Assembly are operating departments; the otherdepartments are service departments. Factory Administration isallocated based on labor-hours; Custodial Services based on squarefeet occupied; Personnel based on number of employees; andMaintenance based on machine-hours.
Required:
1. Allocate service department costs to consuming departments bythe step-down method. Then compute predetermined overhead rates inthe operating departments using machine-hours as the allocationbase in Machining and direct labor-hours as the allocation base inAssembly.
2. Repeat (1) above, this time using the direct method. Againcompute predetermined overhead rates in Machining and Assembly.
3. Assume that the company doesn’t bother with allocatingservice department costs but simply computes a single plantwideoverhead rate that divides the total overhead costs (both servicedepartment and operating department costs) by the total directlabor-hours. Compute the plantwide overhead rate.
4. Suppose a job requires machine and labor time as follows:
| Machine-
Hours | | Direct
Labor-Hours |
| Machining Department | 260 | | 32 |
| Assembly Department | 18 | | 84 |
| Total hours | 278 | | 116 |
| |
Using the overhead rates computed in (1), (2), and (3) above,compute the amount of overhead cost that would be assigned to thejob if the overhead rates were developed using the step-downmethod, the direct method, and the plantwide method.
