Franz Products, Inc. assembles Goofy Gadgets (a children\'s toy). They have two

Question

Franz Products, Inc. assembles Goofy Gadgets (a children's toy). They have two operating departments (Assembly and Packaging).

Their two service departments (HR and Maintenance incur costs that are allocable to other departments. Franz uses the step method for allocating service department costs

HR costs are allocated first. The allocation is based on labor hours.

Maintenance costs are allocated based on square feet.

You have the following information from the annual budget:

a. Determine the allocation of service department costs using the step method.

b. Determine the predetermined MOH rate for Assembly assuming MOH is allocated based on labor hours. (Assume that all labor hours indicated in Question 1 for Assembly are direct.) Round to two decimals.

HR Maintenance Assembly Packaging Total Total overhead costs $100,000 $150,000 $320,000 $205,000 $775,000 Labor hours 10,000 12,000 47,600 20,400 90,000 Square feet 1,200 1,800 5,000 3,000 11,000

Explanation / Answer

Franz Products HR Maintenance Assembly Packaging Total Remarks Total overhead costs            100,000     150,000            320,000         205,000         775,000 Labor hours              10,000        12,000              47,600           20,400           90,000 Allocable % Labor Hrs 15.00% 59.50% 25.50%           80,000 used for HR cost allocation Square feet                 1,200          1,800                5,000              3,000           11,000 Allocable Sqare Feet ratio 62.50% 37.50%              8,000 Used for maintenance cost allocation Maintenance Assembly Packaging Total a. Allocation of HR costs        15,000              59,500           25,500         100,000 Maintenance cost     150,000 Total Allocable cost Maintenance     165,000 Allocation of Maintenance Cost            103,125           61,875         165,000 Total allocation of service costs            162,625           87,375         250,000 b. If Maintenance OH is allocated Assembly Packaging Total on Direct Labor Hr basis then; Total Allocable cost Maintenance     165,000 Direct Labor Hrs allocable              47,600           20,400           68,000 Allocation of Maintenance OH            115,500           49,500         165,000 Predetermine MOH rate                   2.43                2.43 So predermined MOH rate for assembly is $2.43 per direct labor hr

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