2. A firm has two production departments, the Assembly Department and the Finishing Department. It also has two service departments: the Stores Department which handles the acquisition, storage and provision of materials to the production departments, and the Maintenance Department responsible for servicing the machinery. Overhead costs are incurred both by the separate departments and by the business as a whole. Budgeted figures for the month of September are as follows: Production depts Assembly Service depts Finishing Stores Maintenance Total Indirect materials 8,000 Indirect labour 25,000 3,000 5,000 3,000 10,000 2,000 5,000 5,000 Rent 160,000 Heat & light 16,000 Depreciation of machines 200,000 Machinery insurance. 8,000 Materials general 10,000 Wages-senior managers 40,000 Floor space (sq. metres) 80,000 800,000 30,000 30,000 5,000 400,000 300,000 100,000 15,000 Machine values REQUIRED: (a) Allocate the general overheads to the four departments, explaining the logic behind your allocation bases. (12 marks) (b) Allocate the service department costs to the production departments. For this purpose, allocate the Stores Department costs on the basis of indirect materials usage by the other departments and the Maintenance Department costs on the basis of the value of the machines used in the production department. (9 marks) (c) The owner of the business thinks that the allocation process detailed at (a) and (b) above is a very complicated way of determining the costs of production and suggests that it would be simpler to just allocate all the overheads according to the departments' use of indirect materials. Re-compute your answers to parts (a) and (b) on the suggested basis and comment on how and why they differ from those originally obtained. (10 marks) 3 PLEASE TURN OVER (d) Discuss the following statement: "Activity-based costing is just a complicated way of doing traditional absorption costing and generally isn't worth the cost and effort." (e) Why do businesses bother assigning costs to products? (14 marks) (5 marks)