San Juan Minerals (SJM) has two service departments and two operating departments.

Service Departments Operating Departments

Maintenance Cafeteria Mining Processing

Overhead costs $48,000 $45,000 $70,000 $130,000
Machine hours 2,000 1,000 11,000 9,000

Number of employees 4..0 30 400 360
Number of labor hours 5,000 15,000

Costs of the Maintenance Department are allocated on the basis of machine hours. Cafeteria costs are
allocated on the basis of number of employees. SJM does not distinguish between variable and fixed
overhead costs.

1. Assuming that SJM allocates service department costs using the direct method, the total cost

allocated from Cafeteria to Mining would be closest to:
A) $21,687.

B) $15,750.

C) $23,684. $45,000 * 400/760 = $23,684

D) $22,500.

2. Assume that SJM uses the step method to allocate service department costs, starting with

Maintenance. The total overhead allocated from Maintenance to Mining would be closest to:

A) $25,143. $48,000 * 11,000/21,000 = $25,143

B) $22,957.

C) $51,150.
D) $16,800.

3. Using the direct method, what is the predetermined overhead rate for the Mining department if its

costs are allocated to jobs using machine hours? $10.92/MH
Maint. Café. Mining Processing

$70,000 $130,000
($48,000) 26,400 21,600

($45,000) 23,684 21,316
$120,084 $172,916

/11,000 /15,000
$10.92 $11.53

4. Using the direct method, what is the predetermined overhead rate for the Processing department if
its costs are allocated to jobs using labor hours? $11.53/LH (See above)

5. Assume that SJM will bid on job 101 that has the following requirements:
Mining Processing

Machine hours 200 150
Labor hours 100 225

Assume further that job 101 has prime costs of $3,000 and marks up its products by 25% over full
cost. Using the direct method, what is the bid price for job 101?