Departmental Distribution of Estimated Overhead—Direct versus Simultaneous Method; Rate Calculation.

Packers Corporation is developing departmental overhead rates based on direct labor hours for its two pro¬ duction departments—Molding and Assembly. The Molding Department employs 20 people, and the Assembly Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Molding Department are budgeted at $200,000, and the Assembly Department costs are budgeted at $320,000. Two service departments, Repair and Power, support the two production departments and have budgeted costs of $48,000 and $250,000, respectively. The produc¬ tion departments’ overhead rates cannot be determined until the service departments’ costs are properly allocated. The following schedule reflects the use of the Repair Department’s and Power Department’s output by the various departments.

Services Provided Department Repair Hours KWH Molding. 1,000 840,000 Assembly. 8,000 120,000 Repair. — 240,000 Power. 1,000 —

10,000 1,200,000 Required:
(1) Calculate the overhead rates per direct labor hour for the two producing departments, allocating service department costs to producing departments only. (Round rates to the nearest cent.)
(2) Calculate the overhead rates per direct labor hour for the two producing departments, using the simulta¬ neous method to distribute service department costs. (Round rates to the nearest cent.)
(3) Explain the difference between the methods and provide arguments to support the simultaneous method.
(ICMA adapted)