Question

Ely Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $60,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $9,000 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $18,000 and $30,000, respectively. Data on standard service hours and number of employees are as follows:

Data on standard service hours and number of employees are as follows:
Maint. Person. Dept. Dept.
Dept. Dept. X Y
Standard service hours used 100 50 300 150
Number of employees 5 10 45 45
Direct labor hours 50 50 250 250

Predetermined overhead rates for Departments X and Y, respectively, are based on direct labor hours.

What is the overhead rate for Department Y assuming the direct method is used?

a. $120.00
b. $218.00
c. $109.00
d. $250.00

Answer 1

Answer:

b. $218.00

Explanation:

Calculation to determine the overhead rate for Department Y assuming the direct method is used

First step

Department Y$30,000

Maintenance Department $20,000

($60,000 × 150/450)

Personnel Department $4,500

($9,000 × 45/90)

Total $54,500

Now let calculate the overhead rate for Department Y

Department Y Overhead rate=$54,500/250

Department Y Overhead rate = $218

Therefore the overhead rate for Department Y assuming the direct method is used will be $218