Question 2 Dave Ltd manufactures glass for the construction industry. The company has two production departments: Machining and Finishing. There are also two support departments: Ordering and Design. The budgeted overhead costs for the year for each department are as follows: $250,000 $130,000 Ordering Design Machining Finishing $600,000 $400,000 The budgeted machine hours for the Machining Department are 24,500, and the budgeted direct labour hours for the Finishing Department are 8,500. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments' output for the year is as follows: Providers of services: Ordering Department Design Department Allocation base No. of Orders Machine hours Users of services: Ordering Department 500 Design Department 1000 Machining Department 4500 3500 Finishing Department 4500 6500 Required: (a) List and explain the sequence that should be followed to allocate the support department costs to production departments using the step-down method in Dave Ltd. Determine the overhead application rates for each production department using the step down allocation method in Dave Ltd. (c) Which of the three methods of support department cost allocation (direct, step- down and reciprocal) results in the most accurate overhead rates? Why? What factors should be considered when choosing the best support department cost allocation method? (d) (3 +12 +4 + 3 = 22 marks)