(Comprehensive support department allocations) Wakowski Company’s annual budget for its three support departments (administration, legal/accounting, and maintenance/engineering) and its two production departments (processing and finishing) is as follows:
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ANNUAL BUDGET ($000 omitted) |
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Legal/ |
Maintenance/ |
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Administration |
Accounting |
Engineering |
Processing |
Finishing |
Total |
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Direct labor |
$1,400 |
$1,000 |
$1,800 |
$5,600 |
$4,000 |
$13,800 |
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Direct material |
140 |
400 |
180 |
800 |
2,400 |
3,920 |
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Insurance |
350 |
100 |
150 |
600 |
440 |
1,640 |
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Depreciation |
180 |
140 |
160 |
400 |
300 |
1,180 |
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Miscellaneous |
60 |
40 |
80 |
120 |
60 |
360 |
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Total |
$2,130 |
$1,680 |
$2,370 |
$7,520 |
$7,200 |
$20,900 |
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ANNUAL BUDGET ($000 omitted) |
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Legal/ |
Maintenance/ |
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Administration |
Accounting |
Engineering |
Processing |
Finishing |
Total |
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Number of |
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employees |
80 |
40 |
60 |
400 |
300 |
890 |
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Sq. ft. of floor |
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space |
800 |
600 |
400 |
1,600 |
2,000 |
5,400 |
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Maint./eng. hours |
30 |
40 |
30 |
136 |
204 |
440 |
a. Prepare a cost distribution that allocates support department costs using the step method. Assume the benefits provided ranking is the order in which the departments are listed. The allocation bases for the support department are (1) administration: number of employees, (2) legal/accounting: floor space, and (3) maintenance/engineering: number of hours. Calculate the factory overhead (OH) rates using 400,000 direct labor hours in processing and 300,000 direct labor hours in finishing. Round OH rates to the nearest $0.10.
b. Calculate the factory overhead rates per direct labor hour using the direct method. Round OH rates to the nearest $0.10.
c. Calculate the factory overhead rates per direct labor hour using the algebraic method. Round percentages to three decimal points. Round OH rates to the nearest $0.10.