Exercise 7.23

Direct Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

The company has decided to simplify its method of allocating support service costs by switching to the direct method.

Required:

1. Allocate the costs of the support departments to the producing departments using the direct method. Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar. Use the rounded values for subsequent calculations.

Allocation ratios:

	Assembly	Finishing
Square footage
Number of receiving orders
Allocations:
	Assembly	Finishing
General Factory	$	$
Receiving
Direct costs
Total	$	$

2. Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.)

	Overhead Rate
Assembly	per direct labor hour
Finishing	per direct labor hour