$15-22$ Allocating costs of support divisions, step$-$down and direct methods. The Bow River

Company has prepared division overhead budgets for budgeted$-$volume levels before allocations as follows:

LO $4$

Administrative services is

$$861,538$

LO $3$

The direct method, Job $89$

allocated costs is $$115\mathrm{.}29$

Support departments:

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 $48,90083,600$

Total for support and operating departments $$125,000$

Management has decided that the most appropriate inventory costs are achieved by using individual

division overhead rates. These rates are developed after support division costs are allocated to operating

divisions.

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 $00000$

Personnela $002,00000$

General plant administration $0357,00000$

Cafeteria: operating loss $0104,0001,0000$

Storeroom $057,0001,0000$

Machining $5,0005030,0008,0002,000$

Assembly $15,00010050,00017,0001,000$

Total $20,000200100,00027,0003,000$

aBasis used is number of employees.

Required

$1.$ Using the step$-$down method, allocate support division costs. Develop overhead rates per direct manufacturing

labour$-$hour for machining and assembly. Allocate the costs of the support divisions in the

order given in this problem. Use the allocation base for each support division you think is most

appropriate.

$2.$ Using the direct method, rework requirement $1.$