University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

123

Pages:

2
Author:

stud_ice13

To allocate overhead costs using the departmental overhead rate method, we will follow the three-step process outlined. Let’s go through each step using the provided data. Step 1: Assign Budgeted Overhead Costs to Department Cost Pools For this example, we will assume the following budgeted overhead costs for the departments: • • Machining Department: $4,200,000 Assembly Department: $600,000 Step 2: Compute Departmental Overhead Rates Next, we need to select the allocation bases and compute the overhead allocation rates for each department. 2.1: Determine Allocation Bases • • Machining Department: Machine hours (MH) Assembly Department: Direct labor hours (DLH) 2.2: Budgeted Allocation Base Data Let’s assume the following budgeted allocation bases: • • Machining: 70,000 MH Assembly: 100,000 DLH 2.3: Calculate Overhead Rates Now, we calculate the departmental overhead rates using the formula: Departmental Overhead Rate=Budgeted Overhead Cost Budgeted Allocation Base • Machining Department: Machining Overhead Rate=4,200,00070,000=60 per machine hour • Assembly Department: Assembly Overhead Rate=600,000100,000=6 per direct labor hour Step 3: Allocate Overhead Costs to Cost Objects Using the departmental overhead rates, we will allocate overhead costs to a job that uses specific amounts of machine hours and direct labor hours. Job Allocation Assume a job uses: • • Machining Department: 16 machine hours Assembly Department: 5 direct labor hours 3.1: Calculate Overhead Allocated to the Job • Machining Overhead Allocated: Machining Overhead Allocated=Machining Overhead Rate×Machine Hours Used= 60×16=960 • Assembly Overhead Allocated: Assembly Overhead Allocated=Assembly Overhead Rate×Direct Labor Hours Use d =6×5=30 Total Overhead Allocated to the Job Now, we sum the overhead allocated from both departments: Total Overhead Allocated=Machining Overhead Allocated+Assembly Overhead A llocated=960+30=990 Summary of Results 1. Machining Overhead Rate: $60 per machine hour 2. Assembly Overhead Rate: $6 per direct labor hour 3. Overhead Allocated to Job: o Machining: $960 o Assembly: $30 o Total Overhead Allocated: $990 This method of using departmental overhead rates allows for a more accurate allocation of overhead costs, reflecting the different consumption of resources by each department. If you have any additional questions or specific data to work with, feel free to ask!