Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments-Molding and Assembly. The Molding Department employs 20 people, and the Assembly Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Molding Department arc budgeted at $190,000, and the Assembly Department costs are budgeted at $80,000. Two support departments-Engineering and General Factory-directly support the two production departments and have budgeted costs of $216,000 and $370,000, respectively. The production departments' overhead rates cannot be determined until the support departments' costs are properly allocated. The following schedule reflects the use of the Engineering Department's and General Factory Department's output by the various departments. Engineering General Factory Molding Assembly Engineering hours - 2,000 2,000 8,000 Square feet 120,000 - 420,000 60,000 For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar. 1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments_for support department costs. 2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments. 3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method. (CMA adapted)
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Macalister Corporation is developing departmental
|
|
Engineering |
General Factory |
Molding |
Assembly |
|
Engineering hours |
- |
2,000 |
2,000 |
8,000 |
|
Square feet |
120,000 |
- |
420,000 |
60,000 |
For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar.
1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments_for support department costs.
2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments.
3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method. (CMA adapted)
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