Madrid Has Two Service Departments (General Factory and Human Resources)

question 32

Essay

Madrid 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. $\begin{array}{c}\begin{array}{lll}\\\\\text {Square feet}\\\text { Employees}\\\text { Machine hours}\\\text { Labor hours}\end{array}\begin{array}{c}\text {General}\\\underline{\text {Factory}}\\7,000\\50\\200\\45,000\end{array}\begin{array}{c}\text { Human } \\\underline{\text { Resources} } \\3,000 \\30 \\--- \\25,000 \end{array}\begin{array}{c}\\\underline{\text { Machining} } \\ 90,000 \\120 \\80,000 \\100,000 \end{array}\begin{array}{c}\\\underline{\text { Assembly }} \\30,000 \\180 \\20,000 \\150,000\end{array}\end{array}$

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 Madrid'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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