Service Department Cost Allocation Presented below are certain operating data for the four departments of Modern Manufacturing Company. Service Production
1 2 1 2
Total manufacturing overhead
costs either identifiable with
or allocated to each department $45,000 $60,000 $55,000 $116,000
Square feet of factory
floor space $90,000 $45,000
Number of factory workers 20 60
Planned direct labor hours for the year 25,000 32,000
Allocate, to the two production departments, the costs of service departments 1 and 2, using factory floor space and number of workers, respectively, as bases. Do not round bases when calculating reallocations of service departments.
Production
Departments 1 2
Identifiable and allocated overhead $55,000 $116,000
Allocation of service departments:
Dept. 1: Factory floor space $30,000 $15,000
Dept. 2: Number of factory workers $15,000 $45,000
Total manufacturing overhead $100,000 $176,000
What is the apparent overhead rate for each production department if planned direct labor hours are overhead application base?

1.                                                                  Production

                                                                     1               2

Identifiable and                                     $55,000   $116,000

Allocated Overhead  

Reallocation of Service Department

Department 1                                         $30,000   $15,000

Department 2                                        $15,000    $45,000

Total Manufacturing Overhead         $100,000  $176,000

                                    Workings

                                                         Production

                                                     1                        2

Identifiable and                    $55,000             $116,000

Allocated Overhead  

Reallocation of Service

Department

Dept 1                             45,000*90,000   45,000*45,000

                                            135,000                135,000

Dept 2                                60,000*20         60,000 * 60

                                                 80                         80

Total Manufacturing      $100,000                $176,000        

Overhead

2. Allocated Based on Labor hours

Production 1 = $100,000 / 25,000 = $4 per direct labor hour

Production 2 = $176,000 / 32,000 = $5.5 per direct labor hour

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1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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