Allocate Service Department Costs Using Direct and Simultaneous Solution Methods: (Note: Matrix algebra is not required for this problem. An algebraic equation can be set up for the costs of each of the two service departments and solved by substitution.) Barrylou Corporation is developing departmental overhead rates based upon direct labor-hours for its two production 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—directly support the two production departments and have budgeted costs of $48,000 and $250,000, respectively. The production 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.

Required:

a. Calculate the overhead rates per direct labor-hour for the molding department and the assembly department using the direct allocation method to charge the production departments for service department costs.

b. Calculate the overhead rates per direct labor-hour for the molding department and the assembly department using the simultaneous solution method to charge service department costs to each other and to the production departments.

Transcribed Image Text:

Repair hours Kilowatt-hours Department Repair Power Molding Assembly 0 1,000 240,000 0 1,000 840,000 8,000 120,000