Gamma Sdn Bhd (GSB) is a manufacturer of machine parts for washing machines. GSB has five support departments and two operating departments. Those support departments include Building and Grounds, Personnel, General Plant Administration, Cafeteria, and Storeroom. While the operating departments consist of Machining and Assembly. Moreover, the company has prepared the department overhead budgets for the budgeted-volume levels before allocations as follows: Support Departments; Building and grounds RM45,000 Personnel 300 General plant administration 37,320 Cafeteria: operating loss 970 Storeroom 9.990 RM 93,580 Operating Departments: Machining Assembly RM36,600 46,000 82,600 RM176,180 Total for support and operating departments The top management of GSB has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after the support- department costs are allocated to operating departments. Bases for allocation are to be selected from the following: Direct Department Manufacturing Number of Labor-Hours Square Feet of Floor Space Manufacturing Employees Occupied Labor-Hours Number of Requisitions Building and grounds 0 0 0 0 0 Personnel 0 0 2,500 0 0 General plant administration 0 40 12,000 0 0 Cafeteria: operating loss 0 10 5,000 3,000 0 Storeroom 0 5 6,000 2,000 0 Machining 8,000 55 22,000 13,000 6,000 Assembly 32,000 140 202,500 26,000 4,000 Total 40,000 250 250,000 44,000 10,000 *Basis used is the number of employees 6 BKAM2013 MANAGEMENT ACCOUNTING I REQUIRED: (a) As the operating department manager, you have been asked by the top management of GSB to allocate the support-department costs using the step-down method. You are required to determine the overhead rates per direct manufacturing labor-hours for Machining and Assembly, and then allocate the costs of the support departments in the order given (follow the list). In doing this, you are given the authority to select the most appropriate allocation base for each support department. Show all workings. (15 Marks) (b) Using the direct method, rework requirement (a). Show all workings. (11 Marks) (c) Based on the following information about two jobs (Job 11 and 12), determine the total overhead costs for each Job 11 and Job 12 by using those rates developed in requirement (a) and requirement (b) above. Show all workings. Direct Manufacturing Labor-Hours Machining Job 11 17 Job 12 9 Assembly 7 20 (6 Marks) (d) (e) GSB evaluates the performance of the operating department managers based on how well they manage their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements (a) and (b)? Explain TWO (2) reasons for your answer. (3 Marks) During the executive meeting held this morning, the top management of GSB is currently considering using the reciprocal method in the near future in allocating the support department costs to the operating departments. As one of the operating department managers, you have been requested to explain on this method and discuss the advantage and disadvantage of using the reciprocal method (in comparison to the direct and step- down methods). END OF QUESTIONS 7