Direct Method

Engineering
Overhead Budget before allocations

363500

Services Provided by:

Engineering
Salaries
Percentage
Allocation

-363500

Materials
Labor Hours
Percentage
Allocation
Total Allocation
Activity Driver
Overhead Rate
Step Method
If Engineering is the major service department:
Engineering
Overhead Budget before allocations

363500

Services Provided by:

Engineering
Salaries
Percentage
Allocation
Materials
Labor Hours
Percentage
Allocation
Total Allocation
Activity Driver
Overhead Rate

-363500

Step Method
If Materials is the major service department:
Engineering
Overhead Budget before allocations

363500

Services Provided by:

Engineering
Salaries
Percentage
Allocation

-393625

Materials
Labor Hours

400

Percentage

0.1

Allocation

30125

Total Allocation
Activity Driver
Overhead Rate

Reciprocal method
Allocation of Engineering cost for Accounting: 400/4,000=0.1000 or 10%
Allocation of Accounting cost for Engineering: 36,000/120,000=0.3000 or 30%
Engineering Cost= E=363,500+0.1000A (Equation 1)
Accounting Cost= A= 301,250+0.3000E (Equation 2)
Put Equation 1 into Equation 2:
A= 301,250+ 0.3000(363,500+0.1000A)
A= 301,250+ 109,050+0.0300A
0.9700A= 410,300
A= 422,989.69
E= 405,798.97

Reciprocal method
Engineering
Overhead Budget before allocations
Services Provided by:

363500

Engineering
Salaries
Percentage
Allocation

-405798.97

Materials
Labor Hours

400

Percentage

0.1

Allocation

42298.969

Total Allocation

Activity Driver
Overhead Rate

Support Departments
Accounting

Operating Departments
Machining

301250

Assembly

Total Budget

336000

234000

1234750

60000

24000

84000

0.7142857143

0.2857142857

259642.8571

103857.1429

800
-301250

2800

0.2222222222

0.7777777778

66944.44444

234305.5556
572162.6985

10000

20000

66.258730154

28.608134925

1234750

Operating Departments
Machining

301250

Assembly

Total Budget

336000

36000

234000

60000

24000

0.3

0.5

0.2

109050

181750

72700

1234750

120000
1

800
-410300

3600
1

662587.30154

Support Departments
Accounting

2800

0.2222222222

0.7777777778

91177.77778

319122.2222

3600
1

608927.77778

625822.2222

10000

20000

60.892777778

31.29111111

1234750

Support Departments
Accounting

Operating Departments
Machining

301250

Assembly

336000

234000

1234750

60000

24000

84000

0.7142857143

0.2857142857

281160.7143

112464.2857

800
-301250

0.7

60250

210875

4000
1

677410.7143

557339.2857

10000

20000

67.74107143

27.866964285

1234750

Operating Departments
Machining

301250

2800

0.2

Support Departments
Accounting

Total Budget

336000

Assembly

Total Budget
234000

1234750

36000

60000

24000

0.3

0.5

0.2

121739.691

202899.485

81159.794

800
-422989.69
-

0.7

2800

0.2

0.7

84597.938

296092.783

120000

4000
0.9

623497.423

611252.577

10000

20000

62.3497423

30.56262885

1234750