Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 22 people, and the Assembly Department employs 80 people. Each person in these two departments works 1,820 hours per year. The production-related overhead costs for the Molding Department are budgeted at $249,000, and the Assembly Department costs are budgeted at $98,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $214,000 and $373,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the Engineering Department’s and General Factory Department’s output by the various departments. Engineering General Factory Molding Assembly Engineering hours — 2,200 2,200 7,800 Square feet 141,240 — 455,820 44,940 For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar. Required: 1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments for support department costs. Round final answers to the nearest cent. Overhead rate per DLH Molding $fill in the blank 1 Assembly $fill in the blank 2 2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments. Round final answers to the nearest cent. Round your intermediate calculations to four decimal places. Overhead rate per DLH Molding $fill in the blank 3 Assembly $fill in the blank 4 3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method. (CMA adapted)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Direct Method, Reciprocal Method, Overhead Rates
Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 22 people, and the Assembly Department employs 80 people. Each person in these two departments works 1,820 hours per year. The production-related overhead costs for the Molding Department are budgeted at $249,000, and the Assembly Department costs are budgeted at $98,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $214,000 and $373,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the Engineering Department’s and General Factory Department’s output by the various departments.
| Engineering | General Factory | Molding | Assembly | |
| Engineering hours | — | 2,200 | 2,200 | 7,800 |
| Square feet | 141,240 | — | 455,820 | 44,940 |
For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar.
Required:
1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments for support department costs. Round final answers to the nearest cent.
| Overhead rate per DLH | |
| Molding | $fill in the blank 1 |
| Assembly | $fill in the blank 2 |
2. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the reciprocal method to charge support department costs to each other and to the production departments. Round final answers to the nearest cent. Round your intermediate calculations to four decimal places.
| Overhead rate per DLH | |
| Molding | $fill in the blank 3 |
| Assembly | $fill in the blank 4 |
3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method. (CMA adapted)
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