P7.38 LO 7.10 Support department cost allocation; departmental overhead rates; product costing: manufacturer Opticon Ltd is developing departmental overhead rates based on machine hours for its moulding department and direct labour hours for its assembly department. The moulding department has 20 machines that each run for 2000 hours per year. The assembly department employs 80 people, who each work 2000 hours per year. The production-related overhead costs distributed to the moulding and assembly departments are budgeted at $1000000 and $1480000, respectively. Two support departments, repairs and engineering, directly support the two production departments, moulding and assembly. These support departments have budgeted costs of $200000 and $1160000, respectively. The production departments' overhead rates cannot be determined until the support department costs are allocated. The following schedule reflects use of the output of the repairs and engineering departments by the various departments. Support departments Repairs User departments Engineering Moulding Assembly Repairs (repair hours) 2000 3000 15000 Engineering (kilowatt hours) 250000 0 850000 150000 Required 1.

(a) Calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Use the direct method to allocate support department costs.

(b) Estimate the overhead cost of a doodad, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department. 2.

(a) Calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Use the step-down method to allocate support department costs. Allocate the repairs department costs first.

(b) Now estimate the overhead cost of the doodad using the overhead rates estimated in part 2(a).