A Company has two support departments (Administration andJanitorial) and three producing departments (Fabricating, Assembly,and Finishing). Costs and activities are as follows:
Administration Janitorial Fabricating Assembly Finishing
Direct costs........................ $50,000 $30,000 $40,000 $50,000 $25,000
Number of employees....... 10 30 40 20
Square feet........................ 2,000 10,000 28,000 15,000
Direct labor hours.............. 5,000 6,000 2,000
Administrative services are allocated based on the number ofemployees; janitorial services are allocated based on squarefootage. Overhead rates for the three producing departments arebased on direct labor hours.
Required:
Determine the overhead application rates for the producingdepartments using each of the three allocation methods:
1. Directallocation method for the support departments
2. Stepallocation method for the supportdepartments
3. Reciprocal allocation method for the support departments
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