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Part 1

The

Western MountainWesternMountain

Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:

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Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:

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Read the

requirements

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.

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Part 1

Requirement 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.

Begin by selecting the allocation base for each support department.

Support Department	Allocation Base
Building and grounds	Square feet of floor space occupied
Personnel	Number of employees
General plant administration	Manufacturing labor-hours
Cafeteria: operating loss	Number of employees
Storeroom	Number of requisitions

Part 2

Using the step-down method, allocate support-department costs. Allocate the costs of the support departments in the order given in this problem. (Round all indirect allocation rates to the nearest cent and all other computations to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs.)

		Support Departments	Operating Departments
				General	Cafeteria
		Bldg and		Plant	Operating
		Grounds	Personnel	Admin.	Loss	Storeroom	Machining	Assembly
Costs incurred	$45,000	$675	$30,870	$810	$8,864	$36,600	$48,000
Allocation of costs:
	Building and grounds	$(45,000)	225	2,700	1,800	360	14,400	25,515
	Personnel		$(900)	180	90	36	360	234
	General plant administration			$(33,750)	1,500	1,500	9,000	21,750
	Cafeteria				$(4,200)	240	2,400	1,560
	Storeroom					$(11,000)	6,600	4,400
Total budgeted costs of operating departments				$69,360	$101,459

Part 3

Develop overhead rates per direct manufacturing labor-hour for machining and assembly using the step-down method. (Round the overhead rates to three decimal places.)

Step-down method:				Overhead rate per direct
	Total costs allocated to department		Direct manufacturing labor-hours	=	manufacturing labor-hour
Machining	$69,360		12,000	=	$5.780
Assembly	$101,459		3,000	=	$33.820

Part 4

Requirement 2. Using the direct method, rework requirement 1.

Using the direct method, allocate support-department costs. (Round cost allocations to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs.)

		Support Departments	Operating Departments
				General	Cafeteria
		Bldg and		Plant	Operating
		Grounds	Personnel	Admin.	Loss	Storeroom	Machining	Assembly
Costs incurred	$45,000	$675	$30,870	$810	$8,864	$36,600	$48,000
Allocation of costs:
	Building and grounds	$(45,000)					16,234	28,766
	Personnel		$(675)				409	266
	General plant administration			$(30,870)			9,035	21,835
	Cafeteria				$(810)		491	319
	Storeroom					$(8,864)	5,318	3,546
Total budgeted costs of operating departments				$68,087	$102,732

Part 5

Develop overhead rates per direct manufacturing labor-hour for machining and assembly using the direct method. (Round the overhead rates to three decimal places.)

Direct method:				Overhead rate per direct
	Total costs allocated to department		Direct manufacturing labor-hours	=	manufacturing labor-hour
Machining	$68,087		$12,000	=	$5.674
Assembly	$102,732		$3,000	=	$34.244

Part 6

Requirement 3. Based on the information about

two jobs

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,

determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.

Start by computing the total overhead costs for each job using the rates developed in (a) requirement 1 (the step-down method.) (Round the total overhead costs to the nearest cent.)

(a) Step-down method:	Total
	Overhead Costs
Job 88:	Machining	$92.48
	Assembly	$338.20
	Total cost of Job 88	$430.68
Job 89:	Machining	$63.58
	Assembly	$676.40
	Total cost of Job 89	$739.98

Part 7

Now compute the total overhead costs for each job using the rates developed in (b) requirement 2 (the direct method). (Round the total overhead costs to the nearest cent.)

(b) Direct method:	Total
	Overhead Costs
Job 88:	Machining	912.5
	Assembly	0
	Total cost of Job 88
Job 89:	Machining
	Assembly
	Total cost of Job 89