Dynamik Company uses the departmental rate in assigning overhead costs. Moulding Department uses machine hours, and Assembly Department uses direct labour hours as overhead allocation bases. Moulding Department has 20 machines whereby each machine

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operated 2,000 hours per year. Assembly Department, on the hand, employed 80 employees. Each employee worked 2,000 hours per year. The company also has two service departments; Repair and Engineering which provide support for both production departments. The departmental overhead rates are only can be determined after allocating the service department costs. The following is the information on the company budget (annually):

Service Department

Production Department

Repair

Engineering

Moulding

Assembly

Estimated overhead costs

RM96,000

RM500,000

RM400,000

RM640,000

Repair hours

0

1,000

1,000

8,000

Kilowatt hours

240,000

0

840,000

120,000

Required :

a) Calculate the departmental rate for Moulding Department and Assembly Department using the following methods in allocating service department costs:

i) Direct method

ii) Step method (allocate costs of Repair Department first)

iii) Reciprocal method.

b) Between the three methods of service department costs allocation, which one will result in a more precise overhead rate? Why?

c) The following is the information related to Job XXY, the only job not completed at the end of the year:

Moulding Department

Assembly Department

Direct material

Direct labour

Manufacturing overhead

Machine hours

Direct labours hours

RM24,500

RM27,900

RM 8,200

360

150

RM 6,700

RM58,600

RM 5,600

200

1,300

Using the direct method in allocating service department costs:

i) Calculate the manufacturing overhead costs applied to Job XXY.

ii) Calculate the overapplied or underapplied manufacturing overhead.

iii) Prepare adjustment entry for recording the above amount using the non-material method.