Summary information	HQ	HR	Building	R+O	Manufacturing	Chemical Treating	Total
Direct labour (hours)	0	0	0	237422	200000	0	437422
processing time	0	0	0	0	0	2200	2200
headcount (employees)	7	10	35	180	350	3	585
floorspace (square feet)	2200	13005	19600	840050	560902	28483	1464240
overhead costs (in $)	4901398	877199	19198554	16179253	33923386	845325	75925115

Kay and Dee Manufacturing (K+D) has three business lines:

Repair and Overhead (R+O): Repair of truck transmissions.

Manufacturing: manufacturing of custom truck transmission parts

Chemical Treating: cleaning of old parts

They also have three support departments. Major activities of each department are:

Human Resources (HR): Payroll, HR staff, employee services, Union/Management relations. Costs for this service department are allocated based on Headcount.

Facility: buildings, building maintenance and related building costs. Costs for this service department are allocated based on area occupied.

Main Office (HQ): salaries for the President, VP, and Finance department. Costs for this service department are allocated based on Direct Labour hours.

Other financial information is in Appendix A.

REQUIRED:

1. Briefly comment on the cost drivers for the support departments. (ie. Do you think they are appropriate, or can you recommend something better? Briefly explain your answer)

In my opinion, the cost drivers for the support departments are correct. There is no need to change for the same. But in case of HQ instead of direct labour company can used corporate tiem spend for that business line.

2. Using the Direct Method, allocate overhead costs from the support departments to the business lines.

3. Using the Step-down method, allocate overhead costs from the support departments to the business lines in the following order:

1^st Building

2^nd HQ

3^rd HR

4. Using the Reciprocal Method, allocate overhead costs from the support departments to the business lines.