Overhead allocations using the Direct Method
ABC Factory has three support departments and two producing departments. Information for each department for 2005 is as follows:
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ABC Factory - Year 2005
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|
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Support Departments
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Producing Departments
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|
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Factory
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Factory
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Factory
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|
|
|
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Administration
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Maintenance
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Cafeteria
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Machining
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Assembly
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Budgeted overhead costs
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$120,000
|
$100,000
|
$50,000
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$200,000
|
$400,000
|
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Direct labor hours
|
6,000
|
10,000
|
4,000
|
20,000
|
30,000
|
|
Square feet occupied
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2,000
|
3,000
|
5,000
|
35,000
|
65,000
|
|
Number of employees
|
5
|
6
|
3
|
15
|
25
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The factory administration costs are allocated based on direct labor hours, factory maintenance costs are allocated based on square footage occupied, and factory cafeteria costs are allocated based on the number of employees.
ABC Factory does not divide overhead into fixed and variable components. Predetermined overhead rates for the producing departments are based on direct labor hours.
Required:
a)Allocate the support department costs using the direct method.
b) Calculate the predetermined overhead rates the producing departments would use to apply overhead to units of product.