Support Departments Producing Departments

Power General Factory Purchasing Assembly Finishing Totals

Overhead Costs P 100,000 P 300,000 P 150,000 P 200,000 P 120,000 P 870,000
Activity levels:
Machine Hours - 1,000 500 2,000 3,000 6,500
Square feet 250 - 750 9,500 9,500 20,000
Purchase orders 42 50 8 300 100 500

Power - Machine hours; General Factory - Square feet; Purchasing - Purchase orders

REQUIRED:
1. Allocate overhead costs to the producing departments using:
a. Direct Method
b. Sequential Method (ranking is from highest cost to lowest cost)
c. Reciprocal Method (assume power and general factory are the only supporting departments)
2. Compute for the departmental overhead rates per method using machine hours.

Direct
Allocation ratios Power General Factory Purchasing Assembly Finishing
Machine Hours - - - 0.4000 0.6000
Square feet - - - 0.5000 0.5000
Purchase orders - - - 0.7500 0.2500

Direct
Cost Assignment Power General Factory Purchasing Assembly Finishing
Direct Costs 100,000 300,000 150,000 200,000 120,000
Support Depts
Power (100,000) - - 40,000 60,000
General Factory - (300,000) - 150,000 150,000
Purchasing - - (150,000) 112,500 37,500
- - - 502,500 367,500
divided by Machine Hours 2,000 3,000
Overhead rate 251.25 122.50

Sequential
Allocation ratios Power General Factory Purchasing Assembly Finishing
Machine Hours - - - 0.4000 0.6000
Square feet 0.0125 - 0.0375 0.4750 0.4750
Purchase orders 0.0950 - - 0.6787 0.2262

Sequential
Cost Assignment Power General Factory Purchasing Assembly Finishing
Direct Costs 100,000 300,000 150,000 200,000 120,000
Support Depts
Power (119,072) - - 47,629 71,443
General Factory 3,750 (300,000) 11,250 142,500 142,500
Purchasing 15,322 - (161,250) 109,446 36,482
- - - 499,575 370,425
2,000 3,000
249.79 123.48
Reciprocal *ignore purchasing
Allocation ratios Power General Factory Assembly Finishing Totals
Machine Hours - 0.1667 0.3333 0.5000 1.0000 6,000
Square feet 0.0130 - 0.4935 0.4935 1.0000 19,250

Reciprocal
Cost Assignment Power General Factory Assembly Finishing Totals
Direct Costs 100,000 300,000 200,000 120,000 720,000
Support Depts
Power (104,126) 17,358 34,705 52,063 -
General Factory 4,126 (317,358) 156,616 156,616 -
0 (0) 391,321 328,679 720,000
2,000 3,000
195.66 109.56
P 870,000

5,000 2nd
19000 1st
400 3rd

Totals
1.0000 0.4 0.6 1
1.0000 0.50 0.50 1
1.0000 0.75 0.25 1

Totals
870,000

- 40000 60,000
- 150000 150000
- 112500 37500
870,000

Totals
1.0000
1.0000
1.0000

Totals
870,000 150,000

-
- 3750 11250 142500 142500
- 161,250
870,000 0