Metal Works Sdn Bhd manufactures a variety of front-end assemblies for both Proton and Perodua Myvi cars in Malaysia. A front-end assembly is the unified front of the car that includes the headlamps, fender and the surrounding metal and plastic fixtures. Metal Works Sdn Bhd has two production departments: Drilling and Assembly. Usually, the front-end assemblies are ordered in batches of 100.

Two support departments provide support for Metal Works Sdn Bhds production departments: Maintenance and Power. Budgeted data for the 3^rd Quarter of 2020 is as follows.

	Support Departments		Production Departments
	Maintenance	Power	Drilling	Assembly
Overhead cost	RM 320,000	RM 400,000	RM 163,000	RM 90,000
Machine hours	-	22,500	30,000	7,500
Kilowatt-hours	40,000	-	36,000	324,000
Direct labor hours	-	-	5,000	40,000

The predetermine overhead rate for Drilling is computed on the basis of machine hours. Direct labor hours are used for Assembly.

Recently, Toyota Motors requested a bid from Metal Works Sdn Bhd on a 3 year contact that would supply front-end assemblies to its factory in Shah Alam. The prime cost for a batch of 100 front-end assemblies are RM 1,817.00. It takes two(2) machine hours to produce a batch in the drilling department and 50 direct labor hours to assemble the 100 front end assemblies in the assembly department.

Metal Works Sdn Bhds policy is to bid full manufacturing cost, plus 15% mark-up.

(Note: round up all calculation to two (2) decimal places)

Required

1. Prepare bids for Metal Works Sdn Bhd by using the following allocation methods:

1. Direct Method

(9 marks)

2. Step-down method, allocate power costs first

(12 marks)

2. Explain the key difference between the two methods. Which method is a more accurate method of allocating the overhead cost. Why?

(4 marks)