Question 3 lIE'IIlass Grow {\"56"} is a small firm that manufacture a variety of glass and 1windows in its Singapore plant. It has three operating departments: L, J and K. In Department I. clear glass sheets are produced and some are sold. Department I makes coloured glass sheetsI and various glass sheets {both clear and coloured] are made into windows in Department K. Department I is very labour intensive. whereas the production processes in Departments J and K. are more machine intensive as the processes making of coloured glass and windows are more complex and complicated. In addition. skilled lahour is required in Departments J and K. to operate the machines. GE'- uses a plantwide overhead allocation method using direct labour hours. The lahour and machine hours expected in each department for the coming year are given below; m sass] 136.3011 GD also has three support departments: 1. 2 and 3. Department 1 handles maintenanceI Department 1 manages HR. and Department 3 provides marketing. Other than supporting operating departments. Department 1 provides services to Departments 12 and 3. Likewise. Department 2 provides services to all operating departments and also Departments l and 3. In contrast. Department 3 only supports operating departments. HR uses headcount to allocate its costs. Maintenance uses square feet {Sqft} and marketing allocates its costs equally to only the three operating departments. The following table shows the annual support department budgets, annual direct overhead costs incurred in operating departments, head count and floor area occupied for each department. Annual direct Annual overhead costs Floor area Department department incurred in Headcount budget (Sqft) operating departments $167,200 15 2,000 (Maintenance) 2 $46,800 800 (HR) 5 3 $826,000 10 1,000 (Marketing) I $100,000 20 10,000 J $250,000 10 10,000 K $450,000 10 20,000 Required: (a) Bill Chang, CEO of GG, believes that Department 1 (maintenance) should be allocated first if the step-down approach is used to allocate support department because it has the highest support department costs. Is Bill correct? Why? (4 marks) (b) Ignoring your answer in part (a), calculate the support departments costs allocated to each operating department using the step-down approach beginning with Department 1, followed by Department 2 then Department 3 (provide your final answer to the nearest dollar). (13 marks) (c) Compute the plant-wide allocation rate and departmental rates for GG (after allocation of support department costs). Discuss if adopting departmental rates for GG will lead to more accurate product cost. (8 marks)