The following information pertains to Longboat Company: $$\begin{array} { | l | c | c | c | c | }
\hline & { \text { Support Departments } } & &{ \text { Producing Departments } } \
\hline & \text { Personnel } & \text { Maintenance } & \text { Fabrication } & \text { Assembly } \
\hline \text { Budgeted overhead } & \$ 40,000 & \$ 72,000 & \$ 140,000 & \$ 160,000 \
\hline \text { Direct 1abor hours } & 2,000 & 2,500 & 8,000 & 10,000 \
\hline \text { Machine hours } & - & - & 12,000 & 8,000 \
\hline \text { Number of employees } & 4 & 5 & 15 & 25 \
\hline
\end{array}$$ Longboat Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours. Predetermined overhead rates for fabrication and assembly are based on direct labor hours. (Round amounts to dollars.)
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) would be
A)$28.80.
B)$24.78.
C)$7.28.
D)$5.40.

Question

The following information pertains to Longboat Company: $$\begin{array} { | l | c | c | c | c | } 
\hline & { \text { Support Departments } } &  &{ \text { Producing Departments } } \
\hline & \text { Personnel } & \text { Maintenance } & \text { Fabrication } & \text { Assembly } \
\hline \text { Budgeted overhead } & \$ 40,000 & \$ 72,000 & \$ 140,000 & \$ 160,000 \
\hline \text { Direct 1abor hours } & 2,000 & 2,500 & 8,000 & 10,000 \
\hline \text { Machine hours } & - & - & 12,000 & 8,000 \
\hline \text { Number of employees } & 4 & 5 & 15 & 25 \
\hline
\end{array}$$ Longboat Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours. Predetermined overhead rates for fabrication and assembly are based on direct labor hours. (Round amounts to dollars.)
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) would be
A)$28.80.
B)$24.78.
C)$7.28.
D)$5.40.

Quizplus · Accepted Answer

The direct method allocates support department costs directly to producing departments without any allocation between support departments. First, allocate the Personnel and Maintenance costs based on the given bases:- Personnel costs ($40,000) are allocated based on the number of employees: Fabrication (15 employees) and Assembly (25 employees) out of a total of 40 employees. So, Fabrication gets $40,000 * (15/40) = $15,000.- Maintenance costs ($72,000) are allocated based on machine hours: Fabrication (12,000 hours) and Assembly (8,000 hours) out of a total of 20,000 hours. So, Fabrication gets $72,000 * (12,000/20,000) = $43,200.Adding these allocated costs to Fabrication's original overhead of $140,000 gives a total overhead of $198,200. The predetermined overhead rate for Fabrication, based on direct labor hours (8,000 hours), is $198,200 / 8,000 hours = $24.775, which rounds to $24.78.

The Following Information Pertains to Longboat Company Longboat Company Does Not Divide Costs into Fixed and Variable