Useful Tool Company has two service departments (General Factory and Repair) and two operating departments (Fabrication and Assembly). Management has decided to allocate repair costs on the basis of the area (square feet) in each department and to allocate General Factory on the basis of labor hours worked by the employees in each of their respective departments.
The following data appear in the company records for the current period:
Gen. Fact Repair Fabric Assembly
Square Feet 2,000 500 8,000 12,000
Labor Hours 1,000 3,500 21,000 10,500
Machine Hours 10,000 12,000
Direct Labor $10,000 $40,000 $90,000 $75,000
Other Costs $4,000 $2,000 $80,000 $50,000
a. The company allocates the two service departments costs from the General Factory Department first. Using the step method, what is the total amount of costs allocated to the Fabrication Department and the Assembly Department?
b. Using the direct method, what is the total amount of costs allocated to the Fabrication Department and the Assembly Department from the two service departments?
c. Using machine hours as the base and the step method of allocation, what is the overhead application rate for the Fabrication Department?
d. Using direct labor hours as the base and the direct method of allocation, what is the overhead application rate for the Assembly Department?
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