Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 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. Required
Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 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. Required
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Allocating costs of support departments; step-down and direct methods. The Eastern Summit
Company has prepared department overhead budgets for budgeted-volume levels before allocations as
follows:
Support departments:
$45,000
7,800
36,120
20,670
18,300
Building and grounds
Personnel
General plant administration
Cafeteria: operating loss
Storeroom
$127,890
Operating departments:
Machining
Assembly
Total for support and operating departments
$36,000
60,000
96,000
$223,890
Management has decided that the most appropriate inventory costs are achieved by using individual-
department overhead rates. These rates are developed after support-department costs are allocated to
operating departments.
Bases for allocation are to be selected from the following:
Direct
Manufacturing Number of Floor Space Manufacturing Number of
Labor-Hours Employees Occupied
Square Feet of
Indirect
Labor-Hours Requisitions
Department
Building and grounds
Personnel"
2,500
12,000
4,500
6,000
22,000
General plant administration
Cafeteria: operating loss
40
10
3,000
2,000
13,000
26,000
44,000
Storeroom
Machining
Assembly
10,000
55
30,000
40,000
10,000
8,300
18,300
140
203,000
250,000
Total
250
*Basis used is number of employees.
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.
Required
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