Chapter 4: Problem Solutions Solution 4.1 (Waldoor Company) Waldoor Company Work-Sheet for Allocation of Factory Overhead For the Month of August, 20XX Overhead Cost Indirect Materials Indirect Labor Payroll Taxes Light and Power Repairs Depreciation, Machinery Fire Insurance Other Expenses TOTALS Reallocation of Service Department Costs: Storeroom TOTALS Building Service TOTALS
Allocation Basis Materials Used Labor Performed Wages K.W-h used Cost of Repairs Cost of Machine Floor Space No. of Employees
Total $21,425 27,000 810 3,500 2,740 7,500 1,300 1,800 $66,075
No.of Requisitions $66,075 Floor Space $66,075
Production Departments A B C $6,045 $5,400 $3,350 6,750 5,000 4,000 203 150 120 1,225 1,050 770 1,250 430 250 2,640 1,800 1,200 455 325 260 720 450 360 $19,288 $14,605 $10,310
Service Departments Building Storeroom $4,915 $1,715 3,750 7,500 112 225 315 140 635 175 1,860 --156 104 180 90 $11,923 $9,949
4,975
2,487
1,492
995
$24,263 5,652 $29,915
$17,092 4,037 $21,129
$11,802 3,329 $15,031
$12,918 (12,918)
(9,949)
P4.2. Solution (Delta Company) a) Cost allocation using the direct method. $90,000
Predetermined Maintenance Cost Allocation Rate = 30,000+50,000 = $1.125 per sq. ft. $48,000
Predetermined Warehouse Cost Allocation Rate = 10,000+15,000 = $1.92 per requisition
Costs Before Allocation Allocation of Maintenance Costs Allocation of Warehouse Costs Costs After Allocation
Service Dept. Maint Ware $90,000 $48,000 (90,000) (48,000) $0 $0
Operating Dept. A B $180,000 $250,000 33,750 56,250 19,200 28,800 $232,950 $335,050
b) Cost allocation using the step-down method. 20,000
Percentage of Maintenance Service to Warehouse = 20,000+30,000+50,000 = 20% 7,000
Percentage of Warehouse Service to Maintenance = 7,000+10,000+15,000 = 21.875%
