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B1: Brearly Ltd is developing departmental overhead rates based upon direct labour hours for its two production departments. - Moulding and Assembly. The Moulding department
B1: Brearly Ltd is developing departmental overhead rates based upon direct labour hours for its two production departments. - Moulding and Assembly. The Moulding department employs 20 people, and the Assembly department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related Overhead costs for the Moulding department are budgeted at $200,000 and the Assembly department costs are budgeted at $320,000. Two support departments Repair and Power - directly support the two production departments and have budgeted costs $48,000 and $250,000 respectively. The production departments' overhead rates cannot be determined until the support departments' costs are properly allocated. The following schedule reflects the use of the Repair Departments' and Power Departments' output by the various departments. a) Calculate the overhead rates per direct labour hour for the Moulding Department and the Assembly Department using the direct allocation method to charge production departments for support department costs (3 marks) b) Calculate the overhead rates per direct labour hour for the Moulding Department and the Assembly Department using the Step distribution method to charge production departments for support department costs. Choose the sequence and present a reason for that sequence. (4 marks) c) Explain the difference between the methods and indicate the arguments generally presented to support the step distribution method over the direct
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