Company: Delta Automotive Parts

Scenario: Overhead Allocation

Department Details:

• Department X:
  • Direct Costs: $300,000
  • Indirect Costs: $150,000
  • Allocation Base: Direct Labor Hours (DLH)
  • DLH Used: 20,000

• Department Y:
  • Direct Costs: $250,000
  • Indirect Costs: $180,000
  • Allocation Base: Machine Hours (MH)
  • MH Used: 15,000

Requirements:

1. Overhead Allocation:
   • Allocate overhead costs to Department X and Department Y using the respective allocation bases (DLH for Department X and MH for Department Y). Present a table showing the allocation of overhead costs.

1. Balance Sheet Impact:
   • Present the impact of overhead allocation on the balance sheet of Delta Automotive Parts. Include the inventory valuation of products from Department X and Department Y after overhead allocation.

1. Financial Reporting:
   • Discuss how the allocation of overhead costs is reported in Delta Automotive Parts' financial statements. Explain the relevance of accurate overhead allocation for financial statement users.

1. Cost Control Strategies:

Recommend cost control strategies for Delta Automotive Parts to optimize overhead allocation in Department X and Department Y. Discuss potential benefits and challenges associated with these strategies