# Department a requires 24 hours of help per month cost

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Department A requires 24 hours of help per monthCost = \$1920Department B requires 57 hours of help per monthCost = \$4560This will allow Department B to understand the economic implications of its usage of IT support andcontrol this usage3.Allocating Overhead costs in Process Costinga)A Plantwide Overhead RateAll overheads are placed in one large cost pool (not disaggregated by department)A single cost driver is used to allocate overheads to products (one that is common to all products)b)Departmental RatesOverheads are allocated to departments based on departments usage of overhead costsSeparate cost driver used for each department to allocate overheads to productsThe difference is the cost driver and type of cost pool usedTotal IT department costs\$400,000Total hours spent helping5000Cost\$80 per hour
Plant-Wide Ratea plant-wide rate is a single overhead rate that is calculated for the entire production plantOne cost poolall overhead costs included within itThree Steps:1.Identify the overhead cost driver2.Calculate the overhead rate per unit of cost driver3.Apply the manufacturing overhead cost to the product based on the predetermined overhead rate and theproduct’s actual consumption of the cost driverStep 2Predetermined Overhead Rate:Step 3:Lecture Illustration:Product XYZ is produced in the two production departments (P1 and P2)-Product XYZ’s prime costs is \$250 per unit-Production of XYZ requires 4 DLHrs in P1 and 15 DLHrs in P2Calculate the unit manufacturing cost of XYZ:Unit cost calculation for product XYZ:Prime costs: \$250Overhead Cost: \$348.27 (4 + 15DLHrs x \$18.33)applied OHTotal Unit Cost = \$598.27
Departmental Ratesdepartmental rates recognise that overheads in each department may be driven by differentcost driversFor example: paint department might be labour intensive (cost driver = direct labour hours), and theassembly department might be machine intensive (cost driver = machine hours)Two Stage Allocation for Department Overhead Rates:Stage 1overhead costs are assigned to production departments (separate cost pool for each department)Step 1:overhead costs are allocated to all departmentsStep 2:support departments costs are reassigned to overhead cost pools in the production departmentsStage 2overhead costs are applied to productsManufacturing overhead rates are calculated foreachproduction departmentsStage 1allocating support department costsInforms user departments of the cost of the services that they are using to assist them with planning and controlof that usageAllocation Methods Include:Direct:support departments costs are allocated directly to production departmentsUnder this method, ignore the support each support department provides to another support departmentStep-Down:partially recognises the services provided by one support department to anotherFirstallocate costs of the support department that serves the largest number of other support departmentsor follow what the question saysIf there is atie

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