Tempest Industries Has Two Service Departments (General Factory and Human

question 6

Essay

Tempest Industries has two service departments (General Factory and Human Resources) and two production departments (Machining and Assembly). The company uses the direct method of service-department cost allocation, allocating General Factory cost on the basis of square feet and Human Resources cost on the basis of employees. Budgeted allocation-base and operating data for the four departments follow.

Additional information:
· Budgeted costs of General Factory and Human Resources respectively amount to $1,560,000 and $950,000.
· The anticipated overhead costs incurred directly in the Machining and Assembly Departments respectively total $3,650,000 and $2,340,000.
· The manufacturing overhead application bases used by Tempest's production departments are: Machining, machine hours; Assembly, labor hours.
· Company policy holds that a department's overhead application rate is based on a department's own overhead plus an allocated share of service-department cost.
Required:
A. Allocate the company's service-department costs to the producing departments.
B. Compute the overhead application rates for Machining and Assembly.

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Definitions:

Work in Process Inventory

Inventory that includes all the materials, labor, and overhead costs for products that are in the process of being manufactured but are not yet complete.

Direct Materials

Raw materials that directly become a part of a finished product and can be easily traced to the product.

Manufacturing Overhead

All indirect costs associated with the production process, including utilities, rent, and salaries of support staff.

Period Costs

Period costs are expenses that are not directly tied to production activities and are expensed in the period they are incurred; examples include administrative salaries and marketing costs.