Holbrook Corporation Is Developing Departmental Overhead Rates Based on Direct

question 74

Essay

Holbrook Corporation is developing departmental overhead rates based on direct labor 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. These service departments 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: $\begin{array}{c}\begin{array}{lll}\\ \text {Repair (repair hours)}\\ \text { Power (kilowatt hours)}\\\end{array}\begin{array}{c}\underline{\text {Repair}}\\\\120,000\end{array}\begin{array}{c}\underline{\text {Power }}\\500\\\\\end{array}\begin{array}{c}\underline{\text { Molding }} \\500 \\420,000\end{array}\begin{array}{c}\underline{\text { Assembly} } \\4,000 \\60,000 \end{array}\end{array}$

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:

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An equation that illustates the relationship between the price of a product and the quantity demanded by consumers.

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The monetary value necessary to acquire a good or service.