TUTORIAL 2: OVERHEAD ALLOCATION

Q1

Required:
Using the direct method, allocate the costs of the service departments to the two operating
departments. Allocate the costs of Administration on the basis of student credit-hours and
Facility Service costs on the basis of space occupied.

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Q2
Ferra Printing Company operates with five departments, namely three support departments
and two production departments. The following is the data for the month of October
regarding the five departments:

Service Departments Operating

Departments
Aministratio Janitorial Maintenance Binding Printing
n
Overhead
140,000 105,000 48,000 275,000 430,000
Costs (RM)
No. of
60 35 140 315 210
employee
Square feet of
15,000 10,000 20,000 40,000 100,000
space
Direct labor
- - - 30,000 60,000
hours
Machine
- - - 10,000 110,000
Hours

Administration Department costs are allocated to the Production Department based on the
number of employees, Janitorial Department costs are based on the square feet of space used,
while Maintenance Department costs are based on direct labor hours. The predetermined
overhead rate for the Binding Department is calculated based on direct labor hours, while for
the Printing Department it is based on machine hours.

Required:
Calculate the predetermined overhead rate for each production department based on
departmental costs that have been allocated using the direct method.

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Q3
Overhead costs directly traceable to production departments:

A. Requires simple allocation efforts

B. Is charged directly to the department
C. Is a variable cost
D. Is a fixed cost

Q4
The pre-determined overhead rate is calculated based on:

A. Actual overhead cost divided by actual activity level.

B. Actual overhead cost divided by estimated activity level.
C. Estimated overhead costs divided by the estimated activity level.
D. Actual overhead cost minus estimated overhead cost.

Q5
Departmental overhead rates are generally preferred to plant-wide overhead rates
when:
A) the activities of the various departments in the plant are not homogeneous.
B) the activities of the various departments in the plant are homogeneous.
C) most of the overhead costs are fixed.
D) all departments in the plant are heavily automated.

Q6
Blackwood Co. uses a predetermined overhead rate based on direct labor cost to apply
manufacturing overhead to jobs. The predetermined overhead rates for the year are
200% for Department A and 50% for Department B. Job 123, started and completed
during the year, was charged with the following costs:

Dept. A Dept. B
Direct materials ............................. $25,000 $5,000
Direct labor .................................… 20000 $30,000
Manufacturing overhead ................ $40,000 $15,000

The total manufacturing costs associated with Job 123 should be:

A) $135,000
B) $180,000
C) $195,000
D) $240,000

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Q7
DD Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $364,140. At
the end of the year, actual direct labor-hours for the year were 24,000 hours,
manufacturing overhead for the year was overapplied by $8,060, and the actual
manufacturing overhead was $359,140. The predetermined overhead rate for the year
must have been closest to:

A) $15.43
B) $15.30
C) $15.17
D) $14.96

Q8
Cribb Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 17,900 hours and the total
estimated manufacturing overhead was $341,890. At the end of the year, actual direct
labor-hours for the year were 16,700 hours and the actual manufacturing overhead for
the year was $336,890. Overhead at the end of the year was:

A) $22,920 underapplied
B) $17,920 overapplied
C) $17,920 underapplied
D) $22,920 overapplied

Questions 9 &10 are using the following information:

AM Company has two support departments – purchasing and maintenance, and two
production departments – manufacturing and assembly. The overhead cost allocation for each
department is as follows:

From To
Purchasing Maintenance Manufacturing Assembly
Purchasing 0% 60% 10% 30%
Maintenance 20% 0% 30% 50%

Direct operating costs for each department are as follows:

Purchasing RM96,000
Maintenance RM18,000
Manufacturing RM72,000
Assembly RM48,000

Q9
What is the total cost of the manufacturing department using the direct method?

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 A. RM102,750
B. RM114,600
C. RM87,000
D. RM131,250

Q10
What is the total cost of the assembly department using the direct method?

A. RM102,750
B. RM114,600
C. RM87,000
D. RM131,250

Q11
LT Company is a manufacturer of body and hand lotions. Each product is produced in a
separate production department. Three support departments are involved in providing support
to the production department: utilities, general plant, and purchasing. The budgeted data for
the five departments is as follows:

Service Depatments Production Depatments

Utilities General Purchasing Body Hand
Plant Lotion Lotion
Overhead RM120,000 RM540,000 RM220,000 RM137,500 RM222,500
Square feet 3,000 1,000 3,000 9,600 8,400
Machine hours 1,233 1,403 1,345 8,000 24,000
Purchase order 20 40 7 60 120
Allocation base Machine Square feet Purchase Machine Machine
hours order Hours Hours

The production department's overhead rate is based on machine hours. Body lotion uses 3
machine hours per kilogram, while hand lotion uses 1.5 machine hours per kilogram.

Required:
a) Calculate the overhead cost per kilogram for each product using the overall factory
overhead rate.
b) Prepare an overhead allocation schedule to the production department using the direct
method.
c) Calculate the overhead cost per kilogram for each product by using the departmental rate
allocated in b) above.