The

Norther PlainNorther Plain

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

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(Click the icon to view the department overhead budgets.)

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:

Requirement 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.

Begin by selecting the allocation base for each support department.

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

(Click the icon to view the department overhead budgets.)

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 follow

Begin by selecting the allocation base for each support department.

Support Department	Allocation Base
Building and grounds	Square feet of floor space occupied
Personnel	Number of employees
General plant administration	Manufacturing labor-hours
Cafeteria: operating loss	Number of employees
Storeroom	Number of requisitions

Using the step-down method, allocate support-department costs. Allocate the costs of the support departments in the order given in this problem. (Round all indirect allocation rates to the nearest cent and all other computations to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs.)

		Support Departments					Operating Departments
				General	Cafeteria
		Bldg and		Plant	Operating
		Grounds	Personnel	Admin.	Loss	Storeroom	Machining	Assembly
Costs incurred		24000	1,176	58,918	1586	812	30000	48,000
Allocation of costs:
	Building and grounds	(24000)
	Personnel
	General plant administration
	Cafeteria
	Storeroom
Total budgeted costs of operating departments

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Data Table

Support departments:
Building and grounds	$24,000
Personnel	1,176
General plant administration	58,918
Cafeteria: Operating loss	1,586
Storeroom	812	$86,492
Operating departments:
Machining	$30,000
Assembly	48,000	78,000
Total for support and operating departments		$164,492

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Data Table

Department	Direct Manufacturing Labor-Hours	Number of Employees	Square Feet of Floor Space Occupied	Indirect Manufacturing Labor-Hours	Number of Requisitions
Building and grounds	0	0	0	0	0
Personnel	0	0	2,800	0	0
General plant administration	0	42	8,400	0	0
Cafeteria: operating loss	0	14	5,600	2,000	0
Storeroom	0	28	42,000	2,000	0
Machining	8,000	70	56,000	6,000	3,000
Assembly	32,000	126	185,200	36,000	2,000
Total	40,000	280	300,000	46,000	5,000
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.

	Direct Manufacturing LaborHours
	Machining	Assembly
Job 88	22	7
Job 89	10	22

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.

Using the step-down method, allocate support-department costs. Allocate the costs of the support departments in the order given in this problem. (Round all indirect allocation rates to the nearest cent and all other computations to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs.)

		Support Departments					Operating Departments
				General	Cafeteria
		Bldg and		Plant	Operating
		Grounds	Personnel	Admin.	Loss	Storeroom	Machining	Assembly
Costs incurred		24000	1,176	58,918	1586	812	30000	48,000
Allocation of costs:
	Building and grounds	(24000)
	Personnel
	General plant administration
	Cafeteria
	Storeroom
Total budgeted costs of operating departments

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