MDOBOKE Co. operates with three producing departments (Cutting, Dividing, and Shelling that are serviced by two service departments Equipment Maintenance and General Plant)

MDOBOKE Co. operates with three producing departments (Cutting, Dividing, and Shelling that are serviced by two service departments Equipment Maintenance and General Plant). Costs are allocated using the step method with the service department servicing the greatest number of other departments allocated first. General Plant is allocated on the basis of square footage and Equipment Maintenance is allocated on the basis of direct labor hours. Relevant May data are:

                                                               Producing Departments                    Service Departments

                                                                                                                     Equipment         General

                                                           Cutting     Dividing      Shelling       Maintenance         Plant

Overhead before

allocation of service

department costs....................... Tshs.105,000 Tshs.93,000 Tshs.87,000 Tshs.56,000 Tshs.30,000

Square footage.................................... 8,000         12,000          6,000               4,000                     ‑-

Machine hours used............................ 6,000           2,000          7,000                     ‑-                     ‑-

Direct labor used................................. 5,000           6,000          9,000                     ‑-                     ‑-

Required:  Prepare a schedule indicating the allocation of service department costs to producing departments and the rate per machine hour for applying overhead in each producing department.  (Round to the nearest cent.)

SOLUTION

                                                                 Producing Departments                  Service Departments

                                                                                                                                  Equipment          General

                                                                   Cutting       Dividing      Shelling       Maintenance           Plant 

Overhead before

allocation of service

department costs........................ Tshs.105,000 Tshs.93,000 Tshs. 87,000 Tshs.56,000 Tshs.30,000

Allocation of service

department costs:

General Plant:

 8,000

‑--‑‑‑‑‑‑ x Tshs.30,000.......................... 8,000                 ‑-                 -‑                     -‑            (8,000)

30,000

12,000

‑-‑‑-‑‑‑‑ x Tshs.30,000................................ -‑         12,000                 ‑-                     -‑          (12,000)

30,000

 6,000

‑‑‑‑‑--‑‑ x Tshs.30,000................................ -‑                 ‑-          6,000                     -‑            (6,000)

30,000

 4,000

‑‑‑‑‑‑--‑ x Tshs.30,000................................ -‑                 ‑-                 ‑-               4,000            (4,000)

30,000

Equipment Maintenance:

 5,000

-‑‑‑‑‑‑-‑ x Tshs.60,000........................ 15,000                --                 ‑-          (15,000)                     ‑-

20,000

 6,000

‑‑‑‑‑--‑‑ x Tshs.60,000................................ -‑         18,000                 -‑          (18,000)                     ‑-

20,000 

 9,000

‑‑‑--‑‑‑‑ x Tshs.60,000.......................          -‑                 ‑-        27,000          (27,000)                     ‑-

20,000

Total overhead......................Tshs.128,000 Tshs.123,000 Tshs.120,000

Machine hours..................................... 6,000           2,000          7,000

Overhead application rate............... Tshs.21.33 Tshs.61.50        17.14