Direct Method and Overhead Rates Belami Company manufactures both shampoo and conditioner, with each product manufactured in separate departments. Three support departments support the production departments: Power, General Factory, and Purchasing. Budgeted data on the five departments are as follows: Overhead Square feet Machine hours Purchase orders Square feet Machine hours Purchase orders Cost assignment: Direct costs Power General Factory Purchasing Power $94,000 3,000 Total Support Departments 20 Shampoo s General Factory Shampoo $430,000 1,403 40 Purchasing $150,000 The company does not break overhead into fixed and variable components. The bases for allocation are power-machine hours; general factory-square feet; and purchasing-purchase orders. 3,000 Required: 1. Allocate the overhead costs to the producing departments using the direct method. If required, round your allocation ratios to four decimal places and round allocated costs to the nearest dollar and us the rounded values for the subsequent calculations. Allocation ratios: Conditioner 1,345 Conditioner 7 Producing Departments Shampoo Conditioner $146,000 $170,000 8,400 24,000 9,600 8,000 60 120

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.