P15-30	Allocating costs of support departments; step-down and direct methods.
The Central Valley Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:
Support departments:
Building and grounds				$45,000
Personnel				300
General plant administration				37,320
Cafeteria: operating loss				970
Storeroom				9,990	$93,580
Operating departments:
Machining				$36,600
Assembly				46,000	82,600
Total for support and operating departments					$176,180
Management has decided that the most appropriate inventory costs are achieved by using individualdepartment overhead rates. These rates are developed after support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:
Department			Direct Manufactring Labor Hours		Number of Employees		Square Feet of Floor Space Occupied		Manufacturing 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
1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department you think is most appropriate.
2. Using the direct method, rework requirement 1.
3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.
	Direct Manufactring Labor-Hours
		Machining	Assembly
	Job 88	17	7
	Job 89	9	20
4. The company evaluates the performance of the operating department managers on the basis of how well they managed 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 1 and 2? Explain.