David Ltd produces two products, A and B, in two production departments P1 and P2. The number of direct labour hours (DLH) and machine hours (MH) required to produce each product in each department is as follows:

Product AProduct B

Production departmentDLHMHDLHMH

P1 (Machining) 514 0.5

P2 (Assembly) 20.54 1

It is expected that 6000 units of product A and 2000 units of product B will be produced.

In addition to the two production departments, the company also has two service or support departments, maintenance (S1) and Quality Control (S2). For the coming year budgeted overhead is $300 000 made up as follows:

S1

Maintenance

S2

Quality control

P1

Machining

P2

Assembly

Total costs ($)

90 000

60 000

100 000

50 000

The consumption of support department services is as follows:

% Services Provided to: S1S2P1P2

% services

Provided by:

S1 0107020

S21006030

Required:

a)Calculate the plant-wide overhead rate assuming that direct labour hours is the cost driver.

b)Allocate the support department costs to the production departments using the direct method of allocation. Show all calculations.

c)Allocate the support department costs to the production departments using the step-down method of allocation. Show all calculations.