labeled P1, P2, SI, and S2, respectively. Direct costs for each department and the Eastern Corporation has two producing…

labeled P1, P2, SI, and S2, respectively. Direct costs for each department and the Eastern Corporation has two producing…

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labeled P1, P2, SI, and S2, respectively. Direct costs for each department and the
Eastern Corporation has two producing department and two service departments
proportion of services costs used by various departments are as follows:
Cost
Direct
Proportion of services used by:
PI
P2
Costs
S1
$2
Center
Pl
P2
P112,500
75,000
25,000
.10
S2
40,000
.20
.30
In calculating predetermined overhead rates. machine hours are used as the base in Pl
and direct labor hours as the base in P2.
S1
Machine hours
Direct labor hours
-P1
62,500
50,000
.80
.10
.50
P2
50,000
25,000
Requirements:
1. Allocate the service department costs to operating departments and compute the
factory overhead rate for Pl and P2 using the following methods:
A. Direct Method
b. Step method – start with Sl
c. Algebraic method
2. Assume the company uses just one basis for applying overhead to jobs going
through both P1 and P2, compute the overhead rate using direct labor hours as
base.

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1 Allocation of Service Department Costs and Computation of Factory Overhead Rates A Direct Method Using the direct method service department costs are allocated directly to operating departments with
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