Determine the overhead application rates for the producing departments using each of the three allocation methods: 1. Direct allocation method for the support departments 2. Step allocation method for the support departments 3. Reciprocal allocation method for the support departments
A Company has two support departments (Administration and Janitorial) and three producing departments (Fabricating, Assembly, and Finishing). Costs and activities are as follows: Administration Janitorial Fabricating Assembly Finishing Direct costs........................ $50,000 $30,000 $40,000 $50,000 $25,000 Number of employees....... 10 30 40 20 Square feet........................ 2,000 10,000 28,000 15,000 Direct labor hours.............. 5,000 6,000 2,000
Administrative services are allocated based on the number of employees; janitorial services are allocated based on square footage. Overhead rates for the three producing departments are based on direct labor hours.
Required: Determine the overhead application rates for the producing departments using each of the three allocation methods:
1. Direct allocation method for the support departments
2. Step allocation method for the support departments
3. Reciprocal allocation method for the support departments
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