15-30 Allocating costs of support departments; step-down and direct methods. The Central Valley Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: Building and grounds $45,000 Personnel 300 General plant administration 37,320 Cafeteria: operating loss 970 Storeroom 9,990 Total $ 93,580 Operating departments: Machining $36,600 Assembly 46,000 82,600 Total for support and operating departments $176,180

Management has decided that the most appropriate inventory costs are achieved by using individualdepartment 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 Labor-Hours Number of Employees Square Feet of Floor Space Occupied Manufacturing Labor-Hours Number of Requisitions Building and grounds 0 0 0 0 0 Personnela 0 0 2,500 0 0 General plant administration 0 40 12,000 0 0 Cafeteria: operating loss 0 10 5,000 3,000 0 Storeroom 0 5 6,000 2,000 0 Machining 8,000 55 22,000 13,000 6,000 Assembly 32,000 140 202,500 26,000 4,000 Total 40,000 250 250,000 44,000 10,000 aBasis used is number of employees. 1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-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. 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 (a) requirement 1 and (b) requirement 2. Direct Manufacturing Labor-Hours Machining Assembly Job 88 17 7 Job 89 9 20

4. The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.