Departmentalization of Manufacturing Overhead
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Departmentalization of Manufacturing Overhead

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Questions and Answers

What is the primary purpose of departmentalization in manufacturing?

  • To create job roles within the company
  • To achieve more accurate costing of jobs and control overhead costs (correct)
  • To reduce the number of employees in a factory
  • To simplify the manufacturing process

    • Which of the following is NOT a step in the procedure of departmentalization?

  • Set up an application rates worksheet
  • Calculate predetermined overhead application rates
  • Demolish unneeded departments (correct)
  • Record actual manufacturing overhead costs by department

    • Which department directly engages in the manufacturing of products?

  • Accounting department
  • Sales department
  • Producing department (correct)
  • Service department

    • How are costs from service departments allocated to producing departments?

    <p>According to predetermined overhead rates</p> Signup and view all the answers

    What do departmental predetermined rates help in determining?

    <p>The overhead costs charged to production in each department</p> Signup and view all the answers

    Which of the following is a characteristic of direct departmental overhead costs?

    <p>They can be easily traced to specific departments</p> Signup and view all the answers

    What is a primary activity needed before calculating departmental overhead application rates?

    <p>Conduct a factory survey to determine allocation bases</p> Signup and view all the answers

    What is an example of a service department?

    <p>Maintenance department</p> Signup and view all the answers

    What is the total allocated cost for the Machining department using the direct method?

    <p>P2,400</p> Signup and view all the answers

    Which allocation method includes the full interdepartmental costs in its calculation?

    <p>Reciprocal Method</p> Signup and view all the answers

    What is the calculated total cost for Department B using the reciprocal method?

    <p>P172,589</p> Signup and view all the answers

    How much of the Power Plant's costs is allocated to the Assembly department using the step method?

    <p>P480</p> Signup and view all the answers

    What is the initial cost set for Department C in the reciprocal method?

    <p>P100,000</p> Signup and view all the answers

    What is the total allocation for Department B from the Storeroom based on units of materials requisitioned?

    <p>P 10,000</p> Signup and view all the answers

    What is the predetermined overhead application rate for Department A per machine hour?

    <p>P 3.455</p> Signup and view all the answers

    How much was the total actual manufacturing overhead charged to both departments combined?

    <p>P 100,850</p> Signup and view all the answers

    What is the amount of overapplied manufacturing overhead for Department A?

    <p>P 17,190</p> Signup and view all the answers

    What is the total underapplied manufacturing overhead for Department B?

    <p>P 6,500</p> Signup and view all the answers

    What is the primary basis used to allocate factory rent costs?

    <p>Square footage</p> Signup and view all the answers

    Which allocation method ignores services rendered by other departments?

    <p>Direct Method</p> Signup and view all the answers

    For storeroom costs, which base is NOT mentioned as an allocation measure?

    <p>Number of orders</p> Signup and view all the answers

    In the Step Method of cost allocation, which department is allocated first?

    <p>The department providing the most services</p> Signup and view all the answers

    Which allocation base would be appropriate for light costs in a factory?

    <p>Kilowatt hour</p> Signup and view all the answers

    What should be the primary consideration when selecting a base for allocating service department costs?

    <p>Definite relationship to service cost</p> Signup and view all the answers

    Which of the following is an allocation base for telephone costs?

    <p>Number of employees</p> Signup and view all the answers

    Which service department's costs might be allocated based on floor space occupied?

    <p>Building maintenance</p> Signup and view all the answers

    What is the calculated value of C after cost allocation?

    <p>P126,396</p> Signup and view all the answers

    Which department uses estimated machine hours to determine the overhead rate?

    <p>Department A</p> Signup and view all the answers

    How much is the total cost allocated to Department B after the allocations?

    <p>P47,000</p> Signup and view all the answers

    Which of the following bases does the Storeroom department use for distributing costs?

    <p>Units of materials requisitioned</p> Signup and view all the answers

    What is the total number of employees across all departments?

    <p>24</p> Signup and view all the answers

    What is the budgeted manufacturing cost for the Department A at the beginning of the year?

    <p>P28,300</p> Signup and view all the answers

    Which allocation adjustments lead to a total of zero in the Factory Office?

    <p>P51,600</p> Signup and view all the answers

    What percentage of the total costs in the source allocation table was allocated to Department A?

    <p>69,100</p> Signup and view all the answers

    Study Notes

    Departmentalization Of Manufacturing Overhead

    • Dividing the plant into segments called "departments" or "cost centers" to which expenses are charged.
    • More accurate job and product costing.
    • More responsible control of overhead costs.
    • Requires the use of different overhead rates for applying manufacturing overhead.
    • A job or product is charged with manufacturing overhead for work done in a particular department based on the department's predetermined overhead rate.

    Types of Departments

    • Producing Department: Directly deals with the manufacturing of products.
      • Examples: assembly, finishing, and packaging department.
    • Service Department: Deals with services that indirectly assist or support the producing department.
      • Examples: purchasing, medical, and maintenance department.
    • Costs from the service department are allocated to the producing department.

    Procedures of Departmentalization

    • Step 1: Calculate departmental predetermined overhead application rates.
    • Step 2: Apply the predetermined overhead rates to production on a department basis.
    • Step 3: Record actual manufacturing overhead costs by department in the Departmental Overhead Analysis Sheet.

    Calculation of Departmental Overhead Application Rates

    • Step 1: Prepare a budget of total direct manufacturing overhead costs of producing departments and total direct expenses of service departments expected at the selected activity levels.
    • Step 2: Conduct a factory survey to determine the bases to be used in allocating indirect manufacturing overhead costs and service department costs.
    • Step 3: Set up an application rates worksheet to facilitate cost distribution by departments.
    • Step 4: Enter budgeted costs that can be traced directly to specific departments as direct departmental costs.
    • Step 5: Allocate budgeted manufacturing overhead costs that cannot be traced to specific departments according to the base selected.
    • Step 6: Distribute or reallocate budgeted service department costs to producing departments.
    • Step 7: Compute departmental predetermined rates by dividing the total budgeted overhead costs charged to each producing department by the base selected.

    Direct Departmental Overhead Costs

    • Examples:
      • Repairs and maintenance - maintenance department
      • Indirect labor - traced to payroll summaries of the department
      • Indirect materials - traced through materials requisition of the department
      • Depreciation of equipment - traced to a department using the equipment

    Allocating Indirect Departmental Costs

    • Each department should be charged with its fair share of the costs determined by the benefits it has received.
    • Examples:
      • Factory Rent - Square footage.
      • Depreciation - Factory Building - Square footage.
      • Fire insurance on building - Square footage.
      • Repairs and maintenance - Square footage.
      • Telephone - Number of employees or number of telephones.
      • Light - Kilowatt-hour.
      • Freight in - Materials used.

    Allocating Service Department Cost

    • A reasonable base must be used to charge the cost of operating a service department to the producing department being served.
    • The base to be used must bear a definite relationship to the cost of the services being served.
    • Examples:
      • Procurement - Number of orders or cost of materials.
      • Receiving - Cost of materials; number of units; number of orders.
      • Storeroom - Cost of materials; number of requisitions filled; number of units handled.
      • Factory office - Number of employees; labor hours; labor costs.
      • Personnel - Number of employees; labor hours; labor cost.
      • Building maintenance - Floor space occupied.
      • Power plant - Kilowatt hours of power usage.

    Methods of Allocating Service Department Cost to Producing Department

    • Direct Method: Most widely used method, ignores services rendered by another service department, allocates each service department's total cost directly to the producing department.
    • Step Method: Recognizes services rendered by other service departments, sequential basis of allocation:
      • Allocation starts with the department that renders the service to the greatest number of departments.
      • If two or more service departments render to the same number of departments, select the department with the highest cost.
    • Reciprocal/Algebraic Method: Recognizes services rendered by, considers reciprocal services rendered by other service departments, uses a system of simultaneous equations..

    Recording Applied Departmental Manufacturing Overhead

    • Work in Process is debited and Manufacturing Overhead Control is credited.

    Recording Actual Departmental Manufacturing Overhead

    • Manufacturing Overhead Control is debited.
    • Manufacturing Overhead Control is credited.

    Overapplied Manufacturing Overhead

    • When actual overhead is less than applied overhead.
    • The overapplied overhead is closed to the Cost of Goods Sold.

    Underapplied Manufacturing Overhead

    • When actual overhead is greater than applied overhead.
    • The underapplied overhead is closed to the Cost of Goods Sold.

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    Related Documents

    Manufacturing Overhead Accounting (Departmentalization) PDF

    Description

    This quiz explores the concept of departmentalization in manufacturing, focusing on how plants are divided into cost centers for more accurate job costing and overhead control. Learn about the differences between producing and service departments and the procedures involved in calculating predetermined overhead rates.

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