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Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. Required

Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. Required

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
Section: Chapter Questions
Problem 28E: Minor Co. has a job order cost system and applies overhead based on departmental rates. Service...
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Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. Required
Transcribed Image Text:Allocating costs of support departments; step-down and direct methods. The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: $45,000 7,800 36,120 20,670 18,300 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $127,890 Operating departments: Machining Assembly Total for support and operating departments $36,000 60,000 96,000 $223,890 Management has decided that the most appropriate inventory costs are achieved by using individual- department overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Manufacturing Number of Floor Space Manufacturing Number of Labor-Hours Employees Occupied Square Feet of Indirect Labor-Hours Requisitions Department Building and grounds Personnel" 2,500 12,000 4,500 6,000 22,000 General plant administration Cafeteria: operating loss 40 10 3,000 2,000 13,000 26,000 44,000 Storeroom Machining Assembly 10,000 55 30,000 40,000 10,000 8,300 18,300 140 203,000 250,000 Total 250 *Basis used is number of employees. 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. Required
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