Allocating overhead. Cameron Company has two production departments and a main-
ID: 2416429 • Letter: A
Question
Allocating overhead. Cameron Company has two production departments and a main- tenance department. In addition, the company keeps other costs for the general plant in a
separate account. The estimated cost data for Year 1 follow:
Cost Production Production Maintenance General Plant
Dept 1 Dept 2
Direct Labor ............................
$100,000
$ 60,000
---
---
Indirect Labor ........................
56,000
28,000
$45,000
$40,000
Indirect Materials..................
18,000
14,000
1,800
16,000
Miscellaneous .........................
6,000
10,000
3,200
10,000
$180,000
$112,000
$50,000
$66,000
Maintenance ...........................
16,000 Hours
24,000 Hours
---
---
The general plant services the three departments in the following proportions: 50 percent (Department 1); 30 percent (Department 2); 20 percent (Maintenance). Allocate main- tenance costs based on maintenance hours.
Allocate maintenance department and general plant costs to the production departments.
Use the step method, starting with general plant costs.
Direct Labor ............................
$100,000
$ 60,000
---
---
Indirect Labor ........................
56,000
28,000
$45,000
$40,000
Indirect Materials..................
18,000
14,000
1,800
16,000
Miscellaneous .........................
6,000
10,000
3,200
10,000
$180,000
$112,000
$50,000
$66,000
Maintenance ...........................
16,000 Hours
24,000 Hours
---
---
Explanation / Answer
Step Down General Plant Maintainence Pro, Dept 1 Prod Dept 2 Total Total cost 66000 50000 180000 112000 408000 Allocates service department costs to other service departments and to production departments General Plant 13200 33000 19800 66000 Maintainence 25280 37920 63200 Total 66000 63200 238280 169720 408000 General Plant cost will be allocated in the ratio of 5:3:2 among Dept1, Dept 2, Maintainence department Now the total cost of maintainence depatment $63200 will be divided among Dept 1 and 2 in ratio of machine hours 16:24
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