Bases for allocation are to be selected from the a

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Accounting Using Excel for Success
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Chapter 21 / Exercise 2
Accounting Using Excel for Success
Reeve/Warren
Expert Verified
Bases for allocation are to be selected from the following: 15-34
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Accounting Using Excel for Success
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Chapter 21 / Exercise 2
Accounting Using Excel for Success
Reeve/Warren
Expert Verified
a Basis used is number of employees. Required: 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate. 2. Using the direct method, rework requirement 1. 3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2. 15-35
4. The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.
15-36
(6) Costs allocated to operating depts. $59,803 $116,377 (7) Divide (6) by direct manufacturing labor-hours ÷ 8,000 ÷ 32,000 (8) Overhead rate per direct manufacturing labor-hour $ 7 .475 $ 3 .637 15-37
3. Comparison of Methods: Step-down method: Job 88: Machining 17 × $7.686 $130.66 Assembly 7 × $3.584 25.09 $155.75 Job 89: Machining 9 × $7.686 $ 69.17 Assembly 20 × $3.584 71.68 $140.85 Direct method: Job 88: Machining 17 × $7.475 $127.08 Assembly 7 × $3.637 25.46 $152.54 Job 89: Machining 9 × $7.475 $ 67.28 Assembly 20 × $3.637 72.74 $140.02 4. The manager of Machining Department would prefer the direct method. The direct method results in a lower amount of support departments’ costs being allocated to the Machining Department than the step-down method. This is clear from a comparison of the overhead rate, per direct manufacturing labor-hour, for the Machining Department under the two methods.

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