Clarion Computing Inc. uses predetermined overhead rates in both of its departments. For Technical support, the rate is based on labour cost; for Data Processing the rate is based on hours of computer time. At the beginning of the most recently completed year, the company made the following estimates:

Technical Data

Support Processing

Direct labour cost $195,000 $ 80,000

Manufacturing overhead $156,000 $ 45,000

Direct labour hours 3,250 9,000

Hours of computer time 3,000 15,000

Required:

4 a) Calculate the predetermined overhead rates to be used in each of the Technical Support and Data Processing departments.

3 b) Brandon Inc, a new client was obtained during the year. Data Processing invoiced Brandon for $200 in direct labour costs for employees and 60 hours of computer time was used for data processing. Technical support billed for $500 direct labour costs and used 10 hours of computer time for technical support. Calculate the total amount billed to Brandon Inc. by Clarion Computing Inc.

1 c) Why would Technical Support choose to use direct labour cost instead of direct labour hours for allocating its overhead costs to customers?