Question:
DIRECT METHOD AND OVERHEAD RATES Pagilla Company manufactures both sunscreen and tubes of lip balm, with each product manufactured in separate departments. Three support departments support the production departments: power, general factory, and purchasing. Budgeted data on the five departments are as follows:
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Support Departments
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Producing Departments
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Power
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General Factory
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Purchasing
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Sunscreen
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Lip Balm
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Overhead
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$120,000
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$540,000
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$220,000
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$137,500
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$222,500
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Square feet
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3,000
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-
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3,000
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9,600
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8,400
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Machine hours
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-
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1,403
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1,345
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8,000
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24,000
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Purchase orders
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20
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40
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7
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60
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120
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The company does not break overhead into fixed and variable components. The bases for allocation are: power-machine hours, general factory-square feet, and purchasing-purchase orders.
Required:
1. Allocate the overhead costs to the producing departments using the direct method. (Take allocation ratios out to four significant digits.)
2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)