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Bond Ltd. has two support departments, HR, and IT and two production departments, Cutting and Stitching. Budgeted manufacturing overhead costs and budgeted activity in the
Bond Ltd. has two support departments, HR, and IT and two production departments, Cutting and Stitching. Budgeted manufacturing overhead costs and budgeted activity in the departments for the current year are shown below: Departmental costs Square metres Number of employees Machine hours Labour Hours Support Departments HR IT $50,000 $100,000 500 1,000 15 20 Production Departments Cutting Stitching $100,000 $200,000 1,000 2,000 20 30 50,000 100,000 100,000 120,000 25,000 45,000 The company uses the step method to allocate support department costs to production departments. The overhead cost of the HR department is allocated first based on square metres occupied. The overhead cost of the IT department is allocated based on the number of employees. Predetermined overhead rates in both the production departments are based on machine hours. The product produced by Bond Ltd. (product 008) requires 4 machine hours per unit in the cutting department and 2 machine hours per unit in the stitching department. Prime cost of the product is $50 per unit. Bond Ltd. prices its product at full production cost plus 250% as profit margin. Required: 1. Allocate the support departments overhead costs to the production departments and calculate the total budgeted manufacturing overhead cost of each production department. 2. Calculate the predetermined manufacturing overhead rate for the cutting department. 3. Calculate the predetermined manufacturing overhead rate for the stitching department. (Round amount to two decimal places) 4. Should actual or budgeted support department overhead costs be allocated to the production departments? Briefly explain your answer. 5. Calculate the per unit price of the product (product 008)
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