=+13-30 KK Allocating costs of support departments; step-down and direct methods OBJECTIVE 3 Dunmore Ltd has prepared department overhead budgets for budgeted-volume levels before allocations as follows:

Support department Building and grounds $10 000 Personnel 1 000 General plant administration 26 090 Cafeteria: operating loss 1 640 Storeroom 2 670 $41 400 Operating departments Machining $34 700 Assembly 48 900 83 600 Total for support and operating department $125 000 Management has decided that it will achieve the most appropriate inventory costs by using individual-department overhead rates.

These rates are developed after support-department costs are allocated to operating departments.

Bases for allocation are to be selected from the following:

Department Direct manufacturing labour-hours Number of employees Square metres of floor space occupied Manufacturing labour-hours Number of requisitions Building and grounds 0 0 0 0 0 Personnela 0 0 200 0 0 General plant administration 0 35 700 0 0 Cafeteria: operating loss 0 10 400 1 000 0 Storeroom 0 5 700 1 000 0 Machining 5 000 50 3 000 8 000 2 000 Assembly 15 000 100 5 000 17 000 1 000 Total 20 000 200 10 000 27 000 3 000 a

Basis used is number of employees.

Required 1 Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labour-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.