Question 2: Support Department Cost allocation and Job Costing

Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total overhead costs of manufacturing departments after the support departments cost have been allocated under three cost allocation methods.

Management of the company has decided that it will achieve the most appropriate job costs by using individual manufacturing department overhead rates to allocate the overhead costs to the jobs. These rates are developed after support-department costs are allocated to manufacturing departments. The company uses normal costing. Machining departments cost is allocated on the basis of machine hours and Assembly departments cost is allocated based on labour hours. The budgeted labour hour and machine hours for the two manufacturing departments are presented below.

Required:

1. (a) Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments costs to the manufacturing departments.

2. (b) 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 to allocate support departments costs to manufacturing departments?