Direct Method, Reciprocal Method, Overhead Rates Macalister Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—Molding and Assembly. The Molding Department employs 19 people, and the Assembly Department employs 77 people. Each person in these two departments works 2,180 hours per year. The production-related overhead costs for the Molding Department are budgeted at $196,000, and the Assembly Department costs are budgeted at $81,000. Two support departments—Engineering and General Factory—directly support the two production departments and have budgeted costs of $204,000 and $411,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the Engineering Department’s and General Factory Department’s output by the various departments. Engineering General Factory Molding Assembly Engineering hours — 1,900 2,100 7,900 Square feet 116,340 — 365,640 72,020 For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar. Required: 1. Calculate the overhead rates per direct labor hour for the Molding Department and the Assembly Department using the direct allocation method to charge the production departments for support department costs. Round final answers to the nearest cent. Overhead rate per DLH Molding $ 14.06 Assembly $

Answer is given below.

If you face difficulty in understating the answer, see attached file.

Explanation:

 MoldingAssembly    

EmployeeA1975    

HoursB21802180    

Toal Labor HoursA*B41420163500    

 EngineeringGen FactoryMoldingAssemblyTotal  

Budgeted Overheads  $       206,000$       395,000$       198,000$         73,000$872,000  

Engineering Hours   210024007600$   12,100  

Square Feet  95850  44730095850$639,000  

Weights for Direct Method        

Engineering Hours    24.00%76.00%  

Square Feet    82.35%17.65%  

Weightes for reciperocal        

Engineering Hours%  17.36%19.83%62.81%  

Square Feet%  15.00%  70.00%15.00%  

1. Direct Method Allocation:        

 EngineeringGen FactoryMoldingAssemblyTotal  

Budgeted Overheads  $       206,000$       395,000$       198,000$         73,000$872,000  

Engineering  $     -206,000  $         49,440$       156,560$            -    

Gen Factory  $     -395,000$       325,294$         69,706$            -    

Total Overheada  $       572,734$       299,266  

Direct Labor Hoursb  41420163500  

Overhead Per DLHa/b  $            13.83$              1.83  

1. Reciperocal Method Allocation:        

Engineering206000+0.15Gen Factory      

Gen Factory395000+0.1736Engineering      

Engineering206000+0.15(395000+0.1736Engineering)      

Engineering206000+59250+0.02604Engineering      

0.97396 Engineering265250      

Engineering$                                    272,342      

Gen Factory395000+0.1736Engineering      

Gen Factory395000+(0.1736*272342)      

Gen Factory$                                    442,264R/Off Gap      

 EngineeringGen FactoryMoldingAssemblyTotal  

Budgeted Overheads  $       206,000$       395,000$       198,000$         73,000$872,000  

Engineering  $     -272,342$         47,266$         54,018$       171,058$            -    

Gen Factory  $         66,340$     -442,264$       309,585$         66,340$            -    

Total Overheada  $       561,603$       310,397  

Direct Labor Hoursb  41420163500  

Overhead Per DLHa/b  $            13.56$              1.90  

Part -3        

The major advantage of reciprocal method is that it fully takes into account the interdepartmental services        

and is therefore considered a more accurate method than direct and step method for departmental cost allocation.        

b

explanation: