Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours

for its two production departments, Etching and Finishing. The Etching Department employs

20 people and the Finishing Department employs 80 people. Each person in these two departments

works 2,000 hours per year. The production-related overhead costs for the Etching Department are

budgeted at $200,000, and the Finishing Department costs are budgeted at $320,000. Two service

departments, Maintenance and Computing, directly support the two production departments. These

service departments have budgeted costs of $48,000 and $250,000, respectively. The production

departments' overhead rates cannot be determined until the service departments' costs are allocated.

The following schedule reflects the use of the Maintenance Department's and Computing

Department's output by the various departments.

Problem 17-26

Service Department Cost

Allocation

(LO 17-1)

1. Overhead rate per hour,

etching: $10.602 (rounded)

2. Maintenance department

costs allocated to finishing:

$87,111

Using Department

Service Department Maintenance Computing Etching Finishing

Maintenance (maintenance hours) ................................................... 0 1,000 1,000 8,000

Computing (minutes) ......................................................................... 240,000 0 840,000 120,000

Required:

1. Use the direct method to allocate service department costs. Calculate the overhead rates per directlabor

hour for the Etching Department and the Finishing Department.

2. Use the step-down method to allocate service department costs. Allocate the Computing Department's

costs first. Calculate the overhead rates per direct-labor hour for the Etching Department

and the Finishing Department.

(CMA, adapted)