Star Engineering Company

Overhead Distribution Sheet

1.) PRODUCTION DEPARTMENT SERVICE DEPARTMENT
  Machining Fabrication Assembly Painting Stores Maintenance Work Office TOTAL BASIS
 
A. Allocation of Overhead  
1. Indirect Labor 33,000.00 22,000.00 11,000.00 7,000.00 44,000.00 32,700.00 - 149,700.00 Exhibit 1
2. Indirect Materials 2,200.00 1,100.00 3,300.00 3,400.00 - 2,800.00 - 12,800.00 Exhibit 1

3. Factory Rent 45,500.00 38,500.00 30,800.00 22,400.00 15,400.00 7,700.00 168,000.00 sq. m
7,700.00
Book
4. Depreciation of Plant &
22,000.00 11,000.00 5,500.00 2,200.00 1,100.00 1,650.00 550.00 44,000.00 Value of
Machinery
Equipment
5. Building Rates & Taxes 650.00 550.00 440.00 320.00 220.00 110.00 110.00 2,400.00 sq. m.
Direct &
6. Welfare Expenses 9,460.00 4,840.00 2,420.00 1,240.00 880.00 654.00 - 19,494.00 Indirect
Labor
Horse
7. Power 40,000.00 20,000.00 2,000.00 4,000.00 - 366.00 68,586.00
2,220.00 Power
8. Work Office & Salaries   130,260.00 130,260.00 Exhibit 1
9. Miscellaneous Store
        1,190.00     1,190.00 Exhibit 1
Department Expenses
Total Allocated Overhead 152,810.00 97,990.00 55,460.00 40,560.00 62,790.00 45,980.00 140,840.00 596,430.00
 
B. Rellocation of Service Department to Production Department  
Store Department 33,893.18 16,946.59 8,684.07 4,476.16 - 64,000.00
Maintenance Department 24,200.00 12,100.00 6,050.00 2,420.00 1,210.00 - 45,980.00
Work Office Department 67,200.00 24,640.00 33,600.00 15,400.00     - 140,840.00    
125,293.18 53,686.59 48,334.07 22,296.16 - - -    
Total Cost of Production 278,103.18 151,676.59 103,794.07 62,856.16 596,430.00
 

2.) Actual Direct Labor Hours 120000 hours 44000 hours 60000 hours 27500 hours

Overhead Rate per DLH 2.32 3.45 1.73 2.29

3.)
a. I agree with the procedure that was adopted by Star Engineering
Company because the cost drivers reflects on how much each
department used the said overhead. Based on the data given, we
can easily recognize that the Machining Department uses a lot of
the overhead than the others.

b.) Even if using the Direct Labor hours as the basis of the overhead
rate could be efficient, it could still distort the product costing. The
company could consider separating the fixed cost from the variable
cost of the overhead so that they could properly cost their products.

4.) Cost of Job No.

879:

Direct Materials 487.92

Direct Labor 460.10
Factory
Overhead:

Machining (50*2.31 115.50

)

(40*3.45
Fabrication 138.00
)

Assembl (20*1.73
34.60
y )

  Painting   (20*2.29   45.80

)
 TOTAL PRODUCTION COST FOR JOB 1,281.9
NO. 879 2

5.) Cost of Job No. 879 using Cost-Plus-Fixed-

Fee (CPFF)

Total Cost of Job 1,281.9

No. 879 2
Fixed Cost     200.00

TOTAL
RECOVERABLE 1,481.9
COST 2

6.) Star Engineering Company mostly allocates its overhead by

rational basis. In which we could easily monitor the department
who uses more and the one who uses the least overhead. The
company uses the direct labor hours as the basis for its overhead
allocation which means that they focus more on the time spent in
labor when producing each unit. To improve the company, they
must try to separate the fixed cost from the variable costs so that
they could cost their products better and earn a bigger profit.