66 has two producing department and two service departments labeled. P1, P2, 81, and 82, respectively. Direct costs for each department and the proportion of services costs used by various departments are as follows: Cost Direct Proportion of services used by: Center Costs 81 S2 P1 P2 P1 90 000 P2 60 000 81 20 000 .80 .10 .10 82 32 000 .20 .50 .30 In calculating predetermined overhead rates, machine hours are used as the base in P1 and direct labor hours as the base in P2. 3 Machine hours 50 000 40 000 Direct labor hours 40 000 20 000 Requirements: 1. Allocate the service department costs to operating departments and compute the factory overhead rate for P1 and P2 using the following methods: A. Direct Method B. Step method - start with 81 C. Algebraic Method 2. Assume the company uses just one basis for applying overhead to jobs going through both P1 and P2, compute the overhead rate using direct labor hours as base. Answer: 1. A. P1 P2 81 82 Direct Cost 90 000 60 000 20 000 32 000 Allocated FOH: 81 10 000 10 000 gzo 0002 82 20 000 12 000 32 000 Total FOH 120 000 82 000 Base 50 000/mhrs 20 000/dlhrs FOH Rate 2.4/mhrs 4.1/dlhrs B. Direct Cost 90 000 60 000 20 000 32 000 Allocated FOH: 81 2 000 2 000 20 000) 16 nnn