(Comprehensive) Ryan Ltd.’s 1998 annual budget for its three service departments (Administration, Accounting, and Engineering) and its two production depart¬ ments (Assembly and Finishing) is presented below.

Assume that expected 1998 activity bases in Assembly and Finishing, respectively, are 24,000 and 20,000 machine hours. /

a. Calculate the overhead allocation rate per machine hour in each revenue- producing department using the direct method.

b. Allocate service department costs to the producing departments using the step method. The service departments are listed in the benefits-provided ranking. Allocation bases for each service department’s costs are (1) Admin¬ istration, number of employees; (2) Accounting, floor space; and (3) Engi¬ neering, engineering hours. Calculate the overhead allocation rate per machine hour in each revenue-producing department.

c. Calculate the overhead allocation rate per machine hour in each revenue- producing department using the algebraic method.LO1

Transcribed Image Text:

ANNUAL BUDGET (S000 OMITTED) Adminis- tration Accounting Engineering Assembly Finishing Total Direct labor $ 700 $500 $ 900 $2,800 $2,000 $ 6,900 Material 70 200 90. 400 1,200 1,960 Insurance 175 50 75 300 220 820 Depreciation 90 70 80 200 150 590 Miscellaneous 30 20 40 60 30 180 Total $1,065 $840 $1,185 $3,760 $3,600 $10,450 Square feet of 400 300 300 800 1,000 2,800 floor space # of employees 40 Engineering == 10 225 30 20 95 200 150 15 80 550 445 75 200 hours