CHAPTER 13.

FATORY OVERHEAD:
DEPARTMENTALIZATION
EXERCISES
E13-3. Rate Calculation – Plantwide versus Departmental Direct Method.
Bistrol Company uses the direct method in distributing service department costs to producing departments. Cost of
Department S1 are distributed on the basis of number of employees, while costs of Department S2 are distributed on the
basis of machine hours. The allocation bases used in calculating predetermined overhead rates are machine hours in
Department P1 and direct labor hours in Department P2.

Producing Departments Service

Departments
P1 P2 S1 S2
Budgeted overhead $410,000 $304,000 $100,000 $50,00
0
Number of employees 90 210 20 28
Machine hours 64,000 16,000
Direct labor hours 25,000 100,000

The following data pertain to Job 437:

Department P1 Department P2
Materials cost $90 $40
Direct labor hours 1 2
Machine hours 3 1

Required:
(1) Calculate predetermined overhead rates for the producing departments and compute the resulting overhead cost of
Job 437.
(2) Calculate a plantwide predetermined overhead rate based on direct labor hours and compute the resulting
overhead cost of Job 437.

E13-4. Rate Calculation – Plantwide versus Departmental Step Method.

Knoxville Company distributes some service department costs to other service departments. However, after a
department’s costs have been distributed, no costs are assigned back to it. Buildings and Grounds is distributed first, using
square feet as a base. The number of employees is used as a base for distributing Factory Administration.

Buildings Factory
Machining Assembly & Administra
Grounds tion
Budgeted overhead $361,956 $420,000 $40,000 $25,000
Square feet 9,000 10,000 1,500 1,000
Number of employees 440 460 50 30
Direct labor hours 452,000 567,250
Machine hours 195,600 23,000

Required:
(1) Compute a plantwide overhead rate, using direct labor hours as a base. Round your answer to the nearest cent.
(2) Compute the overhead rate for Machining, using machine hours as a base, and for Assembly, using direct labor
hours as a base. Round answers to the nearest cent.
E13-5. Departmental Distribution of Estimated Overhead – Direct Method; Rate Calculation
Aleck Company’s facility contains two producing departments. Cutting and Assembly, and two service departments,
Maintenance and Administration. Maintenance Department costs is distributed based on square feet, and Administration
Department cost is distributed based on number of employees. Service department costs are distributed to producing
departments only. Producing department overhead rates are computed based on machine hours. The estimated annual data
are as follows:

Cutting Assembly Maintenanc Administra

e tion
Number of employees 150 100 40 30
Square feet 21,000 9,000 4,000 3,000
Machine hours 25,000 20,000
Factory overhead $520,000 $400,000 $200,000 $150,000
budget

Required: Prepare an overhead distribution and compute factory overhead rates.

E13-6. Departmental Distribution of Estimated Overhead – Step Method; Rate Calculation

The Garrett Mixing Company has two producing departments, Mixing and Finishing, and two service departments,
Cafeteria and Product Design. The company assigns service department costs to other service departments; however, after
a department’s costs have been distributed, no costs are assigned back to it. Cafeteria is distributed first, based on the
number of employees, and Product Design is distributed based on the number of product orders. In calculating
predetermined overhead rates, machine hours are used as the bases in both producing departments. The following data are
provided:

Product
Cafeteria Design Mixing Finishing
Budgeted overhead $10,000 $50,000 $100,000 $200,000
Number of employees 10 5 65 130
Number of product 100 200
orders
Machine hours 40,000 60,000

Required: Develop predetermined overhead rates for the Mixing and Finishing departments.

E13-7. Department Distribution of Estimated Overhead – Step Method; Rate Calculation

The Nickey Company uses the step method in distributing the costs of its two service departments, S1 and S2, to its
producing departments, P1 and P2. S1 is distributed first on the basis of number of employees. S2 is distributed on the
basis of machine hours. Departmental overhead rates are based on machine hours in P1 and direct labor hours in P2. The
following budgeted data are available:

S1 S2 P1 P2
Budgeted overhead $10,000 $34,750 $208,000 $300,000
Number of employees 15 10 180 210
Machine hours 4,000 3,000
 Direct labor hours 5,000 10,000

Required:
(1) Develop predetermined overhead rates for the producing departments.
(2) If Nickey Company decides to change to a plantwide rate based on direct labor hours, what will that rate be?
(3) Why are separate departmental rates preferable to a single plantwide rate?

E13-8. Departmental Distribution of Estimated Overhead – Step Method; Rate Calculation; Job Order Costing
Washington Company has two service departments, Maintenance and Personnel. The step method is used in distributing
service department costs to producing departments, with Maintenance distributed first, based on square feet. In calculating
predetermined overhead rates, machine hours are used as a base in Machining and direct labor hours are used as a base in
Assembly. Budgeted monthly cost and other operating data are as follows:
Maintenan
ce Personnel Machining Assembly
Factory overhead $30,000 $15,000 $150,000 $75,000
Square feet 2,000 4,000 19,000 17,000
Number of 5 3 40 80
employees
Machine hours 22,700
Direct labor hours 8,000 16,625

Cost and related data pertaining to Job No. 3752 are:

Machining: Machine hours 10

Materials $60
Direct labor (4 hours) $6
Assembly: Materials $7
Direct labor (11 hours) $9

Required:
(1) Develop predetermined overhead rates for Machining and Assembly
(2) Compute the total cost of Job No. 3752

E13-9. Departmental Distribution of Estimated Overhead – Simultaneous Method.

The estimated departmental overhead for producing departments S and T and the estimated costs of service departments
E, F, and G (before any service department distributions) are:

Producing Department Service Department

S $60,000 E $20,000
T 90,000 F 20,000
G 10,000

The interdependence of the departments is as follows:

Services Provided By
Department E F G
Producing-S - 30% 40%
Producing-T 50% 40 30
Service-E - 20 -
Service-F 20 - -
Service-G 30 10 -
 Marketing - - 20
General Office - - 10
100% 100% 100%
Required:
(1) Compute the final amount of estimated factory overhead of each service department after reciprocal transfer costs
have been calculated algebraically.
(2) Compute the total factory overhead of each producing department and the amount of Dept. G cost assigned to the
Marketing Department and to General Office.

E13-10. Departmental Distribution of Actual Overhead – Step Method.

The Thompson Mining Corporation has producing departments A and B, and service departments C, D, E, and F. Costs
are distributed from F first, D second, C third, and E fourth. It is the company’s policy that once a service department’s
costs have been distributed, no costs from other service departments are to be distributed to it. F distributes one half of its
cost to A and the remainder to D and E on the basis of the number of employees. D distributes its costs on the basis of
investment in equipment, C’s are assigned to B, and E’s are distributed on the basis of floor space. The following
information pertains to the month just ended:
Department Cost Square Employe Inv. in
Feet es Equip.
A $15,00 2,000 40 $170,000
0
B 12,000 3,000 20 80,000
C 12,000 4,000 20 130,000
D 8,000 2,000 30 70,000
E 2,000 1,500 20 50,000
F 2,000 2,500 10 30,000
Total $51,00 15,000 140 $530,000
0

Required: Distribute service department overhead.

E13-11. Departmental Distribution of Actual Overhead – Step Method
Orbeson Company has two producing departments, A and B, and four service departments, C, D, E and F. Costs are
distributed from Department F first, D second, C third, and E fourth. The company assigns some service department costs
to other service departments; however, after a department’s cost have been distributed, no costs are assigned back to it.
Department F distributed one-half of its costs to A and the remainder, on the basis of number of employees, to
Departments D and E. Department D distributes its costs on the basis of the investment in equipment. C’s costs are
assigned to B, and E’s expenses are distributed on the basis of floor space.
The following information is available for March:

Inv. in
Equip.
Actual Square Employe (in
Department Cost Feet es thousands)
A $100,00 1,500 20 $12,500
0
B 80,000 2,500 10 6,000
C 120,000 3,000 10 10,000
D 56,000 1,500 15 5,000
E 15,000 1,000 10 4,000
F 30,000 1,200 5 2,000
Total $401,00 10,700 70 $39,500
0

Required: Distribute service department costs, based on the data given.

E13-12. Departmental Distribution of Actual Overhead – Simultaneous Method

Hayes Company has decided to distribute the costs of service departments by the simultaneous method. The producing
departments are P1 and P2, the service departments are S1 and S2. and the monthly data are:
Actual Overhead Services Provided By
Costs before S1 S2
Distribution
P1 $94,000 40%` 50%
P2 85,000 50% 30
S1 20,000 -- 20
S2 17,600 10 --

Required: Compute the total factory overhead of producing department P1 after distribution of service department costs.

E13-13. Multiple Overhead rates.

Marx Tool shop has a diverse product line, with some jobs requiring much labor and little machine use and others
requiring the opposite mix. Because no single base for a predetermined overhead rate provides management with reliable
product cost information, factory overhead is classified into two cost pools, and two predetermined overhead rates are
used. For the year 20A, it is estimated that total factory overhead costs will consists of $200,000 of overhead related to the
usage of direct labor hours and $300,000 of overhead related to machine usage. Total machine usage is expected to be
4,000 hours for the year, and total direct labor hours are expected to be 16,000.
Job 345, which was completed early in the year 20A, required $1,000 of direct material, 30 hours of labor at $10
per hour, and 10 hours of machine time.
Required:
(1) Calculate the predetermined overhead rates for the year 20A.
(2) Prepare a completed job order cost sheet for Job 345.
E13-14. Multiple Overhead Rates.
Magnoloa Fabricators produces a varied product line in a highly automated facility without the use of direct labor. A large
number of bulky materials are used, and weight-related material handling costs are high. Some jobs use much bulky
material and little machine time, and other use the opposite mix. Because no single base for a predetermined overhead rate
provides management with reliable product cost information, factory overhead is classified into two cost pools, and two
predetermined overhead rates are used. For the year 20A, it is estimated that total factory overhead costs will consists of
$600,000 of overhead related to materials and $900,000 of overhead related to machine usage. Total machine usage is
expected to be 3,600 hours for the year, and the total weight of materials used is expected to be 300 tons.
Job 103, which was completed early in the year 20A, required 70 hours of machine time and four tons of
materials with a direct material cost of $22,000.

Required:
(1) Calculate the predetermined overhead rates for the year 20A.
(2) Prepare a completed job cost sheet for Job 103.