POCHTAR CORPORATION
The POCHTAR CORPORATION had used a single plant-wide rate to determine its predetermined overhead rate at the beginning of the year, but it has now decided that the most appropriate method is to use two individual department overhead rates, one for the Machining Department and one for the Assembly Department. In computing the predetermined overhead rate(s), whether a single plant wide rate is used or whether two department overhead rates are used, direct labor hours is used as the cost driver for the operating departments.
At the beginning of the year the POCHTAR CORPORATION has prepared individual department overhead budgets, before any allocations, and identified cost drivers for the departments listed below:
DEPARTMENT OVERHEAD BUDGETS
Support Departments:
Building and grounds (cost driver: square feet) $12,000
Personnel (cost driver: employees) 1,200
General plant administration (cost driver: manufacturing hours) 25,000
Operating Departments:
Machining $35,500
Assembly 46,300
BUDGETED AMOUNT OF EACH COST DRIVER
The budgeted amounts for each cost driver per department are given below:
Department Direct labor hrs. Employees Square feet Manuf. hours
Building & Grounds 0 0 0 0
Personnel 0 0 12,000 0
General plant 0 35 8,000 0
Machining 5,000 50 30,000 8,000
Assembly 15,000 100 50,000 17,000
REQUIRED:
What is the predetermined overhead rate using a single plant-wide rate? If necessary, round to the nearest cent.
What are the two predetermined overhead department rates, using the direct method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.
What are the two predetermined overhead department rates, using the step method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.
Based on the following information about two jobs, A and B, determine the total overhead costs for each job by using (1) the single plant-wide rate computed in question 1 above and (2) two predetermined overhead rates using the direct method of allocating support costs to the operating departments computed in question 2 above. Very briefly explain which method makes more sense. Please do not simply say that one method is more accurate than the other.
Direct Labor Hours:
Machining Department Assembly Department
Job A 18 2
Job B 3 17
POCHTAR CORPORATION
The POCHTAR CORPORATION had used a single plant-wide rate to determine its predetermined overhead rate at the beginning of the year, but it has now decided that the most appropriate method is to use two individual department overhead rates, one for the Machining Department and one for the Assembly Department. In computing the predetermined overhead rate(s), whether a single plant wide rate is used or whether two department overhead rates are used, direct labor hours is used as the cost driver for the operating departments.
At the beginning of the year the POCHTAR CORPORATION has prepared individual department overhead budgets, before any allocations, and identified cost drivers for the departments listed below:
DEPARTMENT OVERHEAD BUDGETS
Support Departments:
Building and grounds (cost driver: square feet) $12,000
Personnel (cost driver: employees) 1,200
General plant administration (cost driver: manufacturing hours) 25,000
Operating Departments:
Machining $35,500
Assembly 46,300
BUDGETED AMOUNT OF EACH COST DRIVER
The budgeted amounts for each cost driver per department are given below:
Department Direct labor hrs. Employees Square feet Manuf. hours
Building & Grounds 0 0 0 0
Personnel 0 0 12,000 0
General plant 0 35 8,000 0
Machining 5,000 50 30,000 8,000
Assembly 15,000 100 50,000 17,000
REQUIRED:
What is the predetermined overhead rate using a single plant-wide rate? If necessary, round to the nearest cent.
What are the two predetermined overhead department rates, using the direct method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.
What are the two predetermined overhead department rates, using the step method of allocating support costs to the operating departments. ? If necessary, round to the nearest cent.
Based on the following information about two jobs, A and B, determine the total overhead costs for each job by using (1) the single plant-wide rate computed in question 1 above and (2) two predetermined overhead rates using the direct method of allocating support costs to the operating departments computed in question 2 above. Very briefly explain which method makes more sense. Please do not simply say that one method is more accurate than the other.
Direct Labor Hours:
Machining Department Assembly Department
Job A 18 2
Job B 3 17
Related questions
Eisentrout Corporation has two production departments, Machining and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Departmentâs predetermined overhead rate is based on machine-hours and the Customizing Departmentâs predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:
| Machining | Customizing | |||||
| Machine-hours | 16,000 | 11,000 | ||||
| Direct labor-hours | 2,000 | 6,000 | ||||
| Total fixed manufacturing overhead cost | $ | 104,000 | $ | 56,400 | ||
| Variable manufacturing overhead per machine-hour | $ | 2.10 | ||||
| Variable manufacturing overhead per direct labor-hour | $ | 3.30 | ||||
During the current month the company started and finished Job T272. The following data were recorded for this job:
| Job T272: | Machining | Customizing | ||||
| Machine-hours | 60 | 30 | ||||
| Direct labor-hours | 10 | 60 | ||||
The predetermined overhead rate for the Machining Department is closest to:
Multiple Choice
$22.93 per machine-hour
$6.50 per machine-hour
$2.10 per machine-hour
$8.60 per machine-hour
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.) |
