Hi.

Crystal Magic Company is developing departmental overhead rates based on direct-labor hours for its two production departments in the production of light-catcher art pieces, Etching and Assembly. The Etching Department employs 12 people and the Assembly Department employs 48 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 $400,000, and the Assembly Department costs are budgeted at $640,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $96,000 and $500,000, 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.

Using Department

Service Department

Maintenance

Computing

Etching

Assembly

Maintenance (maintenance hours)

0

1,000

1,000

8,000

Computing (minutes)

240,000

0

840,000

120,000

Required:

(Use M for Maintenance and C for Computing in your equations.)

1. What is the equation for the total cost of the maintenance department when using the reciprocal services method?

2. What is the equation for the total cost of the computing department when using the reciprocal services method?

3. Solve each equation.

4. Using the reciprocal-services method to allocate service department costs, calculate the overhead rates per direct-labor hour for the Etching Department and the Assembly Department.

-ma