ALLOCATION OF SERVICE DEPARTMENT COSTS
Exercise 5 - 6. ALLOCATION OF SERVICE DEPARTMENT COSTS
The controller of MM Company estimates that factory overhead will be as follows for ts two
producing departments and three service departments.
Cutting department P 240,000
Finishing department 168,000
Maintenance department 40,340
Warehousing department 30,000
Factory office 65,000
The controller also provides the following tabulation of the interdependence of departments:
Services provided by
To Department Maintenance Warehousing Factory office
Cutting 45% 50% 62%
Finishing 28 32 38
Maintenance - 10 -
Warehousing 15 - -
Factory office 12 8 -
The estimated direct labor cost for purposes of determining applied overhead rates are:
Cutting department P 300,000
Finishing department 200,000
REQUIRED: On the basis of the foregoing information set up a schedule
- Showing the three redistribution methods as follows:
- Direct method (Round to nearest peso)
- Step method. Distribute maintenance first. (Round to nearest peso)
- Linear algebra method
- Compute the overhead application rate based on direct labor under each method.
(Round to one decimal place only)
- Direct Method
- Step Method
- Linear Algebra Method
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