Reciprocal Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

	Support Departments		Producing Departments
	General Factory	Receiving	Assembly	Finishing
Direct overhead	$400,000	$160,000	$43,000	$74,000
Square footage		2,700	5,400	5,400
Number of receiving orders	300		1,680	1,020
Direct labor hours			25,000	40,000

Required:

1. Allocate the overhead costs of the support departments to the producing departments using the reciprocal method. (Round allocation ratios to two decimal places. Round allocated costs to the nearest dollar. If an amount is zero, enter "0".)

Allocation ratios:

	General Factory	Receiving	Assembly	Finishing
Square footage	0	2700 / (2700+5400+5400) = 0.2	5400 / (2700+5400+5400) = 0.4	5400 / (2700+5400+5400) = 0.4
Number of receiving orders	300 / (300+1680+1020) = 0.1	0	1680 / (300+1680+1020) = 0.56	1020 / (300+1680+1020) = 0.34

Allocations:

	General Factory	Receiving	Assembly	Finishing
Direct overhead cost	$400,000	$160,000	$43,000	$74,000
General Factory	160,000 + 0.2(400,000) = 240,000 240,000 / (1-0.2) = 244,898 400,000 + 0.1(244898) = 424,490 -424,490	(-244898) - 160,000 = 84,898
Receiving	400,000 - (-424,490) = 24,490	(Copy from general factory step 2) -244,898
Total	$0	$0	$	$

2. Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.)

	Overhead Rate
Assembly	$ per direct labor hour
Finishing	$ per direct labor hour

Feedback

1. I don't quite understand my calculations for the first two columns (general factory and receiving) of the second table. I don't know how to calculate the last two columns (assembly and factory) of the second table.

2. I need to totals of Assembly and Finishing before I can calculate the overhead rates (total allocation cost / direct labor hours).