Reference no: EM13915689

Overhead allocations using the Direct Method

ABC Factory has three support departments and two producing departments. Information for each department for 2005 is as follows:

ABC Factory - Year 2005
	Support Departments			Producing Departments
	Factory	Factory	Factory
	Administration	Maintenance	Cafeteria	Machining	Assembly
Budgeted overhead costs	$120,000	$100,000	$50,000	$200,000	$400,000
Direct labor hours	6,000	10,000	4,000	20,000	30,000
Square feet occupied	2,000	3,000	5,000	35,000	65,000
Number of employees	5	6	3	15	25

The factory administration costs are allocated based on direct labor hours, factory maintenance costs are allocated based on square footage occupied, and factory cafeteria costs are allocated based on the number of employees.

ABC Factory does not divide overhead into fixed and variable components. Predetermined overhead rates for the producing departments are based on direct labor hours.

Required:

a)Allocate the support department costs using the direct method.

 

b) Calculate the predetermined overhead rates the producing departments would use to apply overhead to units of product.