Charlie Company manufactures a high SPF sunscreen lotion using two producing departments: mixing and bottling. Three service departments support the production departments: maintenance, building and grounds, and cafeteria. Budget data for overhead for the five departments are shown below. Cost drivers are as follows: Maintenance/Machine hours; Building & Grounds/Square feet; Cafeteria/Number of employees.
- Producing
- Service Departments Departments
- Building &
- Maintenance Grounds Cafeteria Mixing Bottling
- Overhead costs $30,000 $70,000 $50,000 $20,000 $30,000
- Number of employees 10 2 3 15 25
- Square feet 1,000 3,000 3,000 9,000
- Machine hours 4,000 1,000
a. Allocate the overhead costs to the producing departments using the direct method and then compute the total overhead cost for each producing department.
b. Using the information developed in a. (above), compute departmental overhead rates for the mixing and bottling departments based on machine hours used by the mixing and bottling departments.