Question
The Upward Hill Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: Building and grounds $9,600 Personnel 880 General
The Upward Hill Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:
Support departments: | ||
Building and grounds | $9,600 | |
Personnel | 880 | |
General plant administration | 19,300 | |
Cafeteria: Operating loss | 2,540 | |
Storeroom | 3,140 | $35,460 |
Operating departments: | ||
Machining | $35,000 | |
Assembly | 47,000 | 82,000 |
Total for support and operating departments | $117,460 |
Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed aftersupport-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:
1. | Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. | ||||||||||||
2. | Using the direct method, rework requirement 1. | ||||||||||||
3. | Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
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4. | The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain. |
Direct Manufacturing Labor-Hours Number of Employees Department Square Feet of Floor Space Occupied 0. Indirect Manufacturing Labor-Hours Number of Requisitions 0 0 0 0 0 0 6,000 0 0 Building and grounds Personnel General plant administration Cafeteria: operating loss 0 40 12,000 0 0 0 5 2,000 1,000 0 Storeroom 0 5 7,500 2,000 0 Machining 60 9,000 9,000 36,000 16,500 10,000 10,400 2,500 2,500 90 Assembly 18,000 200 80,000 23,400 5,000 Total aBasis used is number of employees
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