Service Department Cost Allocation Overhead rate per hour, etching: $10.602 (rounded) Maintenance department costs allocated to finishing: $87,111Using 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 20 people, and the Finishing Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Etching Department are budgeted at $200,000, and the Finishing Department costs are budgeted at $320,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $48,000 and $250,000, 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 hrs. ...........0……………...1,000………………1,000…………8,000 Computing mins. ............240,000…………0…….……….840,000……………..120,000 Required: 1. Use the direct method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department. Use the step-down method to allocate service department costs. Allocate the Computing Department’s costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department. Use the step-down method to allocate service department costs. Allocate the Computing Department’s costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Service Department Cost Allocation
- Overhead rate per hour, etching: $10.602 (rounded)
- Maintenance department costs allocated to finishing: $87,111Using
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 20 people, and the Finishing Department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the Etching Department are budgeted at $200,000, and the Finishing Department costs are budgeted at $320,000. Two service departments, Maintenance and Computing, directly support the two production departments. These service departments have budgeted costs of $48,000 and $250,000, 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 hrs. ...........0……………...1,000………………1,000…………8,000
Computing mins. ............240,000…………0…….……….840,000……………..120,000
Required: 1. Use the direct method to allocate service department costs. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
- Use the step-down method to allocate service department costs. Allocate the Computing Department’s costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
- Use the step-down method to allocate service department costs. Allocate the Computing Department’s costs first. Calculate the overhead rates per direct-labor hour for the Etching Department and the Finishing Department.
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