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Let's use Porter Company, as an example. Porter has two producing departments - Fabricating and Assembly - and three support departments - Maintenance, Human Resources
Let's use Porter Company, as an example. Porter has two producing departments - Fabricating and Assembly - and three support departments - Maintenance, Human Resources (HR) and General Factory (GF). Porter provided the following information on the five departments: Maintenance HR GF Fabricating Assembly Direct overhead cost $80,000 $120,000 $260,000 $93,400 $56,700 Machine hours 1,000 3,000 5,000 12,000 3,000 Direct labor hours 4,000 5,000 8,000 10,000 30,000 Square footage 500 2,500 10,000 12,000 18,000 Porter uses the direct method of support department cost allocation. Maintenance is allocated based on machine hours, HR on the basis of direct labor hours, and GF on the basis of square footage. The Fabricating overhead rate is based on machine hours and the Assembly overhead rate is based on direct labor hours. Fill in the following table to allocate support department costs to the producing departments. (Round all allocation ratios to four significant digits and all allocated amounts to the nearest dollar. If an amount box does not require an entry, leave it blank or enter "0".) Maintenance HR GF Fabricating Assembly Direct overhead cost $80,000 $120,000 $260,000 $93,400 $56,700 Allocate: Maintenance Human Resources General Factory Total after allocation Notice that after allocation, zero dollars remain in the support departments and all overhead cost has been allocated to the producing departments. As a check on your work, add up all direct overhead costs from the first line - it equals $610,100. Then add the totals after allocation - again, it equals $610,100. Finally, calculate the overhead rates (rounded to the nearest cent) for Fabricating and Assembly. Fabricating overhead rate $ per machine hour Assembly overhead rate $ per direct labor hour Suppose that the square footage for Fabricating and Assembly were equal at 12,000 each. How would that affect the allocation of the following
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