The following information pertains to Amon Schrock Corporation: Amon Schrock Corporation 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.
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) is

Question

The following information pertains to Amon Schrock Corporation:  Amon Schrock Corporation 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.
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) is

Quizplus · Accepted Answer

Since the predetermined overhead rate for the Fabrication Department is based on direct labor hours, we cannot use the information provided to calculate the rate. However, we do know that personnel costs are allocated based on the number of employees and maintenance costs are allocated based on machine hours, so we can use this information to calculate the total support department costs for each department. Using the direct method, we can allocate these support department costs to the production departments (Fabrication and Assembly) based on their usage of the support services. Once we have allocated the support department costs, we can calculate the predetermined overhead rate for each department by dividing the allocated overhead by the estimated direct labor hours. Using this method, we get a predetermined overhead rate of $24.78 for the Fabrication Department. Therefore, the best choice is B.

The Following Information Pertains to Amon Schrock Corporation: Amon