Pets Co is determining whether to use the direct method or the step method in allocating...

 

Transcribed Image Text:

Pets Co is determining whether to use the direct method or the step method in allocating service department costs to production departments. Costs of the human resources department are allocated based on number of employees. Costs of janitorial services are allocated based on square meters. The production departments allocate their overhead using a predetermined overhead rate. In the assembly department, the cost driver is machine hours, and in the finishing department, the cost driver is direct labor hours. Human resources Janitorial Assembly Finishing Overhead budget $50,000 $25,000 $200,000 $300,000 Number of employees 50 20 60 120 Square meters 2,200 5,000 40,000 10,000 Machine hours budgeted 60,000 20,000 Direct labor hours budgeted 1,500 3,500 Job No. 49A Assembly Finishing Materials cost $60 $45 Direct labor hours 1 2 Machine hours 3 1 Required: a) Compute the total overhead cost of Job No. 49A using departmental rates based on the direct method as described above. b) Compute the total overhead cost of Job No. 49A using departmental rates based on the step method, allocating human resources first. c) Which method do you recommend Produce well should use? Pets Co is determining whether to use the direct method or the step method in allocating service department costs to production departments. Costs of the human resources department are allocated based on number of employees. Costs of janitorial services are allocated based on square meters. The production departments allocate their overhead using a predetermined overhead rate. In the assembly department, the cost driver is machine hours, and in the finishing department, the cost driver is direct labor hours. Human resources Janitorial Assembly Finishing Overhead budget $50,000 $25,000 $200,000 $300,000 Number of employees 50 20 60 120 Square meters 2,200 5,000 40,000 10,000 Machine hours budgeted 60,000 20,000 Direct labor hours budgeted 1,500 3,500 Job No. 49A Assembly Finishing Materials cost $60 $45 Direct labor hours 1 2 Machine hours 3 1 Required: a) Compute the total overhead cost of Job No. 49A using departmental rates based on the direct method as described above. b) Compute the total overhead cost of Job No. 49A using departmental rates based on the step method, allocating human resources first. c) Which method do you recommend Produce well should use?

Answer rating: 100% (QA)

Pets Co Overhead Allocation Methods a Total Overhead Cost Using Direct Method Department Overhead Ra... View the full answer