Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours for its two production departments, Etching and Finishing. The Etching Department employs 30 people and the Finishing Department employs 70 people. Each person in these two departments works 1,200 hours per year. The production-related overhead costs for the Etching Department are budgeted at $280,000, and the Finishing Department costs are budgeted at $400,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $47,840 and $290,000, respectively. The production departments' overhead rates cannot be determined until the service departments' costs are allocated. The following schedule reflects the use of the Maintenance Department's and Computing Department's output by the various departments. Using Department Service Department Maintenance Maintenance (maintenance hours) Computing (minutes) 0 249,600 Computing 1,080 Etching Finishing 0 1,080 873,600 8,640 124,800 Required: 1. Use the reciprocal-services method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department. 2. Which of the three methods of service department cost allocation results in the most accurate overhead rates?
Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours for its two production departments, Etching and Finishing. The Etching Department employs 30 people and the Finishing Department employs 70 people. Each person in these two departments works 1,200 hours per year. The production-related overhead costs for the Etching Department are budgeted at $280,000, and the Finishing Department costs are budgeted at $400,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $47,840 and $290,000, respectively. The production departments' overhead rates cannot be determined until the service departments' costs are allocated. The following schedule reflects the use of the Maintenance Department's and Computing Department's output by the various departments. Using Department Service Department Maintenance Maintenance (maintenance hours) Computing (minutes) 0 249,600 Computing 1,080 Etching Finishing 0 1,080 873,600 8,640 124,800 Required: 1. Use the reciprocal-services method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department. 2. Which of the three methods of service department cost allocation results in the most accurate overhead rates?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Celestial Artistry Company is developing departmental overhead rates based on direct-labor hours for its two production departments,
Etching and Finishing. The Etching Department employs 30 people and the Finishing Department employs 70 people. Each person in
these two departments works 1,200 hours per year. The production-related overhead costs for the Etching Department are budgeted
at $280,000, and the Finishing Department costs are budgeted at $400,000. Two service departments, Maintenance and Computing,
directly support the two production departments. These service departments have budgeted costs of $47,840 and $290,000,
respectively. The production departments' overhead rates cannot be determined until the service departments' costs are allocated.
The following schedule reflects the use of the Maintenance Department's and Computing Department's output by the various
departments.
Using Department
Service Department
Maintenance
Computing
Etching
Finishing
Maintenance (maintenance hours)
0
1,080
Computing (minutes)
249,600
0
1,080
873,600
8,640
124,800
Required:
1. Use the reciprocal-services method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the
Etching Department and the Finishing Department.
2. Which of the three methods of service department cost allocation results in the most accurate overhead rates?
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