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Midterm Quiz 3 on Cost Accounting and Control – Manufacturing Overhead – Departmentalization

Problem: Service Department Costs Allocation ( 40 points )

The Val Company has two service departments and two producing departments. The following are the
overhead costs of each department:

Service Department:
Factory Administration P129,000
Building and Grounds 105,000
Producing Department:
Machinery 416,000
Assembly 380,000
Additional Information:
Department Estimated Total Labor Hours Square Footage
Factory Administration 2,900 1,200
Building and Grounds 1,100 1,500
Machinery 2,000 1,900
Assembly 1,600 3,200

The costs of factory administration are allocated based on estimated labor hours; building and grounds
costs are allocated based on square footage. The producing department uses machine hours with
30,000 for machinery and 22,800 for assembly.

Required:

a. Allocate the cost of the service departments to the producing departments using the
Reciprocal Method.
b. Compute the predetermined manufacturing overhead rates of the producing departments.