KENTUCKY CORPORATION

..... manufactures widgets in two processes: Assembly and Finishing. They use a process costing system with the weighted average methodand normal costingusing departmental overhead rates to account for costs in the Assembly and Finishing departments. Since the process is very labor intensive, the nature of the overhead is such that the production departments allocate manufacturing overhead costs on the basis of direct labor hours, which it feels is the most appropriate cost driver.

Prior to the start of the year, the following information is BUDGETED for the company's two support departments and their two producing departments. At the end of the year, the company also wishes to evaluate how effectively the managers of the Assembly and Finishing Departments controlled their costs.

The company uses a single-rate allocationsystem and, accordingly, makes NO ATTEMPT to separately allocate the fixed and variable support department costs (duel rate).

The company breaks the overhead cost pool into two separate pools. The first is Receiving, which consists of all the costs related to receiving, inspecting, sorting, moving and stocking of various materials and parts. The company has identified all of the activities that relate to this function, and the amount of costs related to each and allocates that cost pool based on the number of receiving orders (called "receivers").All of the other indirect manufacturing costs not directly traceable to an individual producing department are gathered in another cost pool called "General Factory". General Factory, therefore, is considered to be providing more services to the Receiving Department than the other way around.General Factory costs are allocated on the basis of square feet.

Support Departments Producing Departments General Factory Receiving Assembly Finishing Directoverhead $400000 $160,000 $ 431000 $ ?4,000 Square footage 2,?00 5400 51400 Number of receiving orders 300 1,680 1020 Direct labor hours 25000 401000