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FSI Company allocates support department costs to production departments before establishing predetermined overhead rates for use in product costing. Cutting uses machine hours as a

FSI Company allocates support department costs to production departments before establishing predetermined overhead rates for use in product costing.

Cutting uses machine hours as a base for overhead allocation and expects to use 75,000 MH this year.

Finishing uses direct labor hours as a base for overhead allocation and expects to use 200,000 DLH this year.

FSI allocates support department costs to the Cutting Department and Finishing Departments before determining their pre-determined MO Rate EngSupport costs are allocated to productive departments based on time of service while IT costs are allocated based on IT hours

Department

EngSupport

IT

Cutting

Finishing

Total

Departmental overhead

$2,000,000

$2,000,000

$3,000,000

$3,000,000

$10,000,000

Time of service

40

100

600

500

1240

IT hours

1,000

2,000

12,000

6,000

21,000

During the year, Job 30-2 is completed. The job required:

Cutting finishing
DLH 200 250
MH 500 100

Required:

A. Complete a cost allocation calculation/table using the step method to put all overhead amounts into the productive departments.

B. Calculate the predetermined overhead rates for the productive departments.

C. Calculate the total overhead applied to Job 30-1.

D. Explain how accountants could change two decisions related to support Department allocations and/or overhead allocations based on predetermined rates, to change the cost charged to this job.

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