Ferndale Corp Required:
A

question 52

Essay

Ferndale Corp. is developing departmental overhead rates based on direct labour hours for its two production departments, Molding and Assembly. The Molding Department worked 20,000 hours during the period just ended, and the Assembly Department worked 40,000 hours. The overhead costs incurred by Molding and Assembly were $151,250 and $440,750, respectively.
Two service departments, Repair and Power, directly support the two production departments and have costs of $90,000 and $250,000, respectively. The following schedule reflects the use of Repair and Power's output by the various departments:
$\begin{array}{lccc}&\underline { \text { Repair } }&\underline { \text { Power } }&\underline { \text { Molding } }&\underline { \text { Assembly } }\\ \text { Repair (repair hours) } & &500 & 500 & 4,000 \\ \text { Power (kilowatt hours) } & 120,000 && 420,000 & 60,000\end{array}$
Required:
A. Allocate the company's service department costs to production departments by using the direct method.
B. Calculate the overhead application rates of the production departments. Hint: Consider both directly traceable and allocated overhead when deriving your answer.
C. Allocate the company's service department costs to production departments by using the step-down method. Begin with the Power Department, and round calculations to the nearest dollar.

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Definitions:

Consolidated Financial Statements

Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as if they were a single financial entity.

Cost Method

An accounting method used to value an investment, based on the purchase price of the asset.

Gross Profit

The difference between sales revenue and the cost of goods sold, reflecting the fundamental profitability of the goods sold.

Cost Method

An accounting approach used for investments, wherein the investment is recorded at cost and adjusted only for dividends received, impairments, or changes in fair value.