Allocating costs of support departments; step-down and direct methods. The Central Valley Company has prepared departmental overhead budgets for normal volume levels before allocations, as follows:

Support departments:

Building and grounds $11,000 Human resources 1,100 General plant administration 28,699 Cafeteria (subsidy for operating loss) 1,804 Storeroom 2,937 Total support departments Operating departments:

$ 45,540 Machining $38,170 Assembly 53,790 Total operating departments 91,960 Total for both departments $137,500 Management has decided that the most sensible inventory costs are achieved by using individual departmental overhead rates. These rates are developed after appropriate 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 Total Number of Requisitions Building and grounds 0 0 0 0 0 Human resources* 0 0 2,200 0 0 General plant administration 0 35 7,700 0 0 Cafeteria 0 10 4,400 1,100 0 Storeroom 0 5 7,700 1,100 0 Machining 5,000 50 33,000 8,800 2,000 Assembly 15,000 100 55,000 18,700 1,000 Total 20,000 200 110,000 29,700 3,000

*Basis used is number of employees.

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

2. Using the direct method, rework requirement 1.

3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in requirements 1 and 2.

Direct Manufacturing Labour-Hours Machining Assembly Job 88 18 2 Job 89 3 17