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The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Support departments: Building and grounds $45,000 Personnel 7,800 General

The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:

Support departments:

Building and grounds

$45,000

Personnel

7,800

General plant administration

36,120

Cafeteria: Operating loss

20,670

Storeroom

18,300

$127,890

Operating departments:

Machining

$36,000

Assembly

60,000

96,000

Total for support and operating departments

$223,890

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

Direct

Square Feet of

Indirect

Manufacturing

Number of

Floor Space

Manufacturing

Number of

Department

Labor-Hours

Employees

Occupied

Labor-Hours

Requisitions

Building and grounds

0

0

0

0

0

Personnel*

0

0

2,500

0

0

General plant administration

0

40

12,000

0

0

Cafeteria: operating loss

0

10

4,500

3,000

0

Storeroom

0

5

6,000

2,000

0

Machining

10,000

55

22,000

13,000

10,000

Assembly

30,000

140

203,000

26,000

8,300

Total

40,000

250

250,000

44,000

18,300

*Basis used is number of employees

Requirements

1.

Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department 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.

4.

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 from the results obtained in requirements 1 and 2? Explain.

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