5-30 Allocating costs of support departments; step-down and direct methods. The Eastem Summit Company has prepared department overhead budgets for budgeted-volume levels before alocations as follows Support departments $45,000 7,800 36,120 20,670 Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroomm 8300 $127890 Operating departments Machining Assembly $36,000 60,000 96,000 Total for support and operating departments Management has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after support-department costs are alocated to operating departments Bases for allocation are to be selected from the following: Direct Manufacturing Labor-Hours Square Feet of Floor Space Indirect Manufacturing Number of Number of ees 0ccupied Labor-Hours Requisitions artment Building and grounds Personnel General plant adminis tration Cafeteria: operating loss Storeroomm Machining Assembly Total 2,500 12,000 4,500 6,000 22,000 203,000 250 250000 40 10 3,000 2000 13,000 26,000 10,000 30,000 10,000 8,300 18,300 140 00 8.300 Basis 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 alocation 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 Assembl Machin Job 88 Job 89 18 10 20 The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including alocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements and 2? Explain
