The maintenance department's costs are allocated to otherdepartments based on the number of hours of maintenance use by eachdepartment. The maintenance department has fixed costs of $500,000and variable costs of $30 per hour of maintenance provided. Thevariable costs include the salaries of the maintenance workers.More maintenance workers can be added if greater maintenance isdemanded by the other departments without affecting the fixed costsof the maintenance department. The maintenance department expectsto provide 10,000 hours of maintenance.
Required:
a. What is the application rate for the maintenance department?(Application rate: Figure the total cost for the maintenancedepartment first (Variable plus fixed) and then the rate based ontotal costs/total maintenance hours)
b. What is the additional cost to the maintenance department ofproviding another hour of maintenance?
b. What problem exists if the managers of other departments canchoose how much maintenance to be performed?
c. What problem exists if the other departments are allowed to gooutside the organization to buy maintenance services?
The maintenance department's costs are allocated to otherdepartments based on the number of hours of maintenance use by eachdepartment. The maintenance department has fixed costs of $500,000and variable costs of $30 per hour of maintenance provided. Thevariable costs include the salaries of the maintenance workers.More maintenance workers can be added if greater maintenance isdemanded by the other departments without affecting the fixed costsof the maintenance department. The maintenance department expectsto provide 10,000 hours of maintenance.
Required:
a. What is the application rate for the maintenance department?(Application rate: Figure the total cost for the maintenancedepartment first (Variable plus fixed) and then the rate based ontotal costs/total maintenance hours)
b. What is the additional cost to the maintenance department ofproviding another hour of maintenance?
b. What problem exists if the managers of other departments canchoose how much maintenance to be performed?
c. What problem exists if the other departments are allowed to gooutside the organization to buy maintenance services?
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HI, I just have a simple or dum question. I am currently takingmanagerial accounting and we are learning the direct and stright-method of predetermined overhead rates. I found an example onlinebut for the DIRECT METHHOD I am not able to figureout where theratios are coming from and what they mean. I would greatlyappreciate the help. Thank You - Maria R.
I just need help with the Direct method question. I need to knowhow to get ratios.
1.
value:
50.00 points
Problem 4B-6 Step-Down Method versus Direct Method;Predetermined Overhead Rates [LO4-10, LO4-11]
The Sendai Co., Ltd., of Japan has budgeted costs in its variousdepartments as follows for the coming year: |
FactoryAdministration | $ | 480,760 |
CustodialServices | 116,260 | |
Personnel | 45,602 | |
Maintenance | 141,258 | |
Machiningâoverhead | 874,528 | |
Assemblyâoverhead | 1,181,192 | |
Total cost | $ | 2,839,600 |
The companyallocates service department costs to other departments in theorder listed below. |
Department | Numberof Employees | Total Labor- Hours | Square Feet of Space Occupied | Direct Labor- Hours | Machine- Hours |
FactoryAdministration | 27 | â | 8,600 | â | â |
CustodialServices | 11 | 11,600 | 3,600 | â | â |
Personnel | 18 | 16,700 | 8,600 | â | â |
Maintenance | 54 | 44,500 | 16,000 | â | â |
Machining | 64 | 60,000 | 60,000 | 112,000 | 180,000 |
Assembly | 96 | 150,000 | 20,000 | 227,000 | 36,000 |
270 | 282,800 | 116,800 | 339,000 | 216,000 | |
Machining and Assembly are operating departments; the otherdepartments are service departments. Factory Administration isallocated on the basis of labor-hours; Custodial Services on thebasis of square feet occupied; Personnel on the basis of number ofemployees; and Maintenance on the basis of machine-hours. |
Required: |
1. | Allocate service department costs to consuming departments bythe step-down method. Then compute predetermined overhead rates inthe operating departments using a machine-hours basis in Machiningand a direct labor-hours basis in Assembly. (Please enterallocations from a department as negative and allocations to adepartment as positive. The line should add across to zero. Do notround intermediate calculations. Round "Predetermined overheadrates" to 2 decimal places and other answers to the nearest wholedollar amount.) |
2. | Allocate service department costs to consuming departments bythe direct method. Again, compute predetermined overhead rates inMachining and Assembly. (Please enter allocations from adepartment as negative and allocations to a department as positive.The line should add across to zero. Do not round intermediatecalculations. Round "Predetermined overhead rates" to 2 decimalplaces and other answers to the nearest whole dollaramount.) |
3. | Assume that the company doesnât bother with allocating servicedepartment costs but simply computes a single plantwide overheadrate based on total overhead costs (both service department andoperating department costs) divided by total direct labor-hours.Compute the plantwide overhead rate. (Round your answer to2 decimal places.) |
4. | Suppose a job requires machineand labor time as follows: |
Machine-Hours | Direct Labor-Hours | |
MachiningDepartment | 290 | 28 |
AssemblyDepartment | 15 | 84 |
Total hours | 305 | 112 |
Compute the amount of overhead cost that would be assigned tothe job if the overhead rates were developed using the stepdownmethod, the direct method, and the plantwide method. (Roundintermediate calculations to 2 decimal places and finalcalculations to the nearest whole dollar.) |