Ajax Manufacturing has two support centers, Engineering and Accounting, and two production centers, Cutting and Milling. The overhead costs for the coming year for the four departments, and their share of usage of support services, is in the following table.

REQUIRED:

a. Determine the amount of Engineering and Accounting to be charged to the two producing centers using direct allocation.

b. Determine the amount of Engineering and Accounting to be charged to the two producing centers using sequential allocation.

c. Determine the amount of Engineering and Accounting to be charged to the two producing centers using reciprocal allocation.

d. If Cutting works 4,000 hours a year and Milling 6,000 hours, what would be the overhead rate per hour worked under each of the three overhead charging schemes suggested above?

e. What allocation method should be used? Why?    

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Engineering Accounting Cutting Milling Overhead $350,000 $250,000 $400,000 $600,000 % Engineering Used % Accounting Used -0- 10% 40% 50% 20% -0- 35% 45%