Question

Ready Company has two operating (production) departments: Assembly and Painting. Assembly has 160 employees and occupies 45,000 square feet; Painting has 110 employees and occupies 30,000 square feet. Indirect factory expenses for the current period are as follows: Administration $ 81,000 Maintenance $ 110,000 Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is (Do not round your intermediate calculations):

Answer 1

Answer:

The total amount of overheads allocated to Assembly Department are $114000

Explanation:

We first calculate the overhead absorption rate for the two departments based on their respective overheads.

Overhead Absorption Rate (OAR)

Administration OAR = 81000 / (160+110) = $300 per employee

Maintenance OAR = 110000 / (45000+30000) = 1.466666667 per sq. feet

The total overheads that should be allocated to assembly department will be:

Total overheads-Assembly = 300 * 160 + 1.466666667 * 45000 = $114000