Problem 4B-6 Step-Down Method versus Direct Method; Predetermined Overhead Rates [LO4-10, LO4-11]

The Sendai Co., Ltd., of Japan has budgeted costs in its various departments as follows for the coming year:

Factory Administration$270,000Custodial Services68,760Personnel28,840Maintenance45,200Machiningoverhead376,300Assemblyoverhead175,900Total cost$965,000

The company allocates service department costs to other departments in the order listed below.DepartmentNumber of

EmployeesTotal

Labor-

HoursSquare

Feet of

Space

OccupiedDirect

Labor-

HoursMachine-

HoursFactory Administration125,000Custodial Services43,0002,000Personnel55,0003,000Maintenance2522,00010,000Machining4030,00070,00020,00070,000Assembly6090,00020,00080,00010,000146150,000110,000100,00080,000

Machining and Assembly are operating departments; the other departments are service departments. Factory Administration is allocated on the basis of labor-hours; Custodial Services on the basis of square feet occupied; Personnel on the basis of number of employees; and Maintenance on the basis of machine-hours.

Required:1.Allocate service department costs to consuming departments by the step-down method. Then compute predetermined overhead rates in the operating departments using a machine-hours basis in Machining and a direct labor-hours basis in Assembly.(Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rates" to 2 decimal places and other answers to the nearest whole dollar amount.)

2.Allocate service department costs to consuming departments by the direct method. Again, compute predetermined overhead rates in Machining and Assembly.(Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round yourfinal answers to 2 decimal places.)

3.Assume that the company doesn't bother with allocating service department costs but simply computes a single plantwide overhead rate based on total overhead costs (both service department and operating department costs) divided by total direct labor-hours. Compute the plantwide overhead rate.(Round your answer to 2 decimal places.)

4.Suppose a job requires machine and labor time as follows:Machine-HoursDirect Labor-HoursMachining Department19025Assembly Department1075 Total hours200100 Compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the stepdown method, the direct method, and the plantwide method.(Round intermediate calculations to 2 decimal places and final calculations to the nearest whole dollar.)