Direct allocation and overhead rates Palaska Public Service Company is an electric util- ity serving Palaska County. It generates power and transmits it to customers and, in addition, buys some power from other utilities to meet peak demand. Currently, the company is construct- ing a new power plant. Operations are divided into three production departments and two service departments. Following are budgeted costs and activities for the coming year.

The company allocates service department costs on the basis of hours of service performed, using direct allocation. The overhead rate for the construction department is based on direct labor hours. For the generation and transmission department, overhead rates are based on kilowatt- hours generated and transmitted.
By the end of the year, the company generated 200,000 kwh of power at an overhead cost of $630,000, and transmitted 210,000 kwh at an overhead cost of $365,000.

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Budgeted overhead Generation in kwh Transmission in kwh Direct labor hours Maintenance hours Accounting hours Service Departments Operation Departments Accounting Maintenance Construction Generation Transmission $60,000 $110,000 $800,000 $500,000 $330,000 180,000 220,000 110,000 57,000 36,000 1,000 300 1,500 5,500 2,000 800 4,400 5,600 4,800 5,200