ormond OBJECT Exerdise 7-20 DIRECT METHOD AND OVERHEAD RATES Ormiond Company man

Question

ormond OBJECT Exerdise 7-20 DIRECT METHOD AND OVERHEAD RATES Ormiond Company manufactures both toothpaste and tooth whitener, with each prod ct manufactured in separate departments. Three support departments support the pro- duction departments: Power, General Factory, and Purchasing. Budgeted data on the fie departments are as follows: Support Departments Producing Departments Tooth rged PowerGeneral Factory Purchasing Toothpaste Whitener $180,000 $141,600 $175,000 8,400 ,000 24,000 120 $420,000 90,000 3,000 Overhead Square feet Machine hours Purchase orders 3,000 1,345 9,600 1,403 40 20 60 How The company does not break overhead into fixed and variable components. The bses f for allocation are: power machine hours, general factory square feet, and purchasing purchase orders. ctiResired uman actlake allocation ratios out to four significant digits.) Allocate the overhead costs to the producing departments using the direct method. Using machine hours, compute departmental overl rates to the nearest cent.) ead rates. (Round the o verhead

Explanation / Answer

a) Allocation of overhead using Direct method (a) (b) c =a+b Allocation ratio Particulars Tooth paste Tooth Whitener Total Tooth paste (a/c) Tooth Whitener (b/c) Square feet                 9,600                       8,400              18,000                            0.53                                       0.47 Machine hours                 8,000                     24,000              32,000                            0.25                                       0.75 Purchase Orders                       60                           120                    180                            0.33                                       0.67 Particulars Tooth paste Tooth Whitener Total Direct Cost $        141,600 $              175,000 $        316,600 Power (In the ratio of Machine hr 0.25:0.75) $          22,500 $                 67,500 $          90,000 General Factory (In the ratio of square feet 0.53:0.47) $        224,000 $              196,000 $        420,000 Purchasing ((In the ratio of purchase order 0.33:0.67) $          60,000 $              120,000 $        180,000 Total overhead $        448,100 $              558,500 $    1,006,600 b) Particulars Tooth paste Tooth Whitener Total overhad (a) $        448,100 $              558,500 Mchine hours (b)                 8,000                     24,000 Departmental overheads rate (a/b) $            56.01 $                   23.27

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