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Departmentalized Overhead
Departmentalized Overhead
Overhead
Chapter 7 (PART 2)
Departmentalized
Overhead
Factory overhead should be
budgeted for each department.
2 categories of departments
Service Departments
Producing Departments
Departmentalized Overhead rates
are for producing departments only.
Producing Departments
Labor Related
Machine Related
Space Related
Service Related
Labor Related Common Costs
Equipment Machine-hours,
depreciation equipment value
P2 60,000
P1 P2
Machine Hours 50,000 40,000
Direct labor Hours 40,000 20,000
Requirement
Allocate the service department costs to
operating departments and compute the
factory overhead rate for P1 and P2 using
the following methods:
Direct Method
Step Method –start with S1
Algebraic Method
Assume the company uses just one basis for
applying overhead to jobs going through
both P1 and P2, compute the overhead rate
using direct labor hours as base.
Solution
Solution
Solution
Problem 6
The ABC Company has 2 service departments
and 2 producing departments.
Service Department
Department 1 –Repair P14,000
Department 2 –Cafeteria P11,000
Producing Department
Department A –Machinery P52,500
Department B –Assembly P48,000
Problem 6 (continued)
Department Square feet Direct labor hours
Repair 1,500 3,500
Cafeteria 1,800 1,200
Machinery 2,000 2,300
Assembly 3,000 1,700
Total 8,300 8,700
The costs of Repair Dept. are allocated on the basis of square feet.
The costs of Cafeteria Dept. are allocated on the basis of estimated
DL hours.
P2 80,000