The Bow River Company has prepared division overhead budgets for$$ budgeted$-$volume levels before allocations as$$ follows: Department Overhead Budgets

Support departments:

Building and grounds

$$10,000$

Personnel

$1,000$

General plant administration

$26,090$

Cafeteria: operating loss

$1,640$

Storeroom

$2,670$

Support departments subtotal

$41,400$

Operating departments:

Machining

$$34,700$

Assembly

$48,900$

Operating departments subtotal

$83,600$

Total for support and operating departments

$$125,000$

Management has decided that the most appropriate inventory costs are achieved by using individual division overhead rates. These rates are developed after support division costs are allocated to operating divisions. Bases for allocation are to be selected from the$$ following: Data

Department

Direct Manufacturing Labour$-$Hours

Number of Employees

Square Metres of Floor Space Occupied

Manufacturing Labour$-$Hours

Number of Requisitions

Building and grounds

$0$

$0$

$0$

$0$

$0$

Personnel$*$

$0$

$0$

$2,000$

$0$

$0$

General plant administration

$0$

$35$

$7,000$

$0$

$0$

Cafeteria: operating loss

$0$

$10$

$4,000$

$1,000$

$0$

Storeroom

$0$

$5$

$7,000$

$1,000$

$0$

Machining

$5,000$

$50$

$30,000$

$8,000$

$2,000$

Assembly

$15,000$

$100$

$50,000$

$17,000$

$1,000$

Total

$20,000$

$200$

$100,000$

$27,000$

$3,000$

$*$Basis used is number of employees

Required

$1.$ Using the$$ step$-$down method, allocate support division costs. Develop overhead rates per direct manufacturing$$ labour$-$hour for machining and assembly. Allocate the costs of the support divisions in the order given in this problem. Use the allocation base for each support division 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 Manufacturing Labour$-$Hours

Machining

Assembly

Job $88$

$18$

$2$

Job $89$

$3$

$17$

$4.$ The company evaluates the performance of the operating division 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.