The Northern Plain Company has prepared division overhead budgets for budgeted-volume levels before allocations as follows:.

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:

Requirement 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.

Begin by selecting the allocation base for each support division.

Support Division	Allocation Base
Building and grounds
Personnel
General plant administration
Cafeteria: operating loss
Storeroom

Data Table $ 72,000 2,025 44,400 30 Support departments: Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom Operating departments: Machining Assembly Total for support and operating departments 17,105 $ 135,560 36,600 48,900 85,500 $ 221,060 1 Data Table 0 0 0 0 Direct Square Metres Manufacturing Number of of Floor Space Manufacturing Number of Department Labour Hours Employees Occupied Labour Hours Requisitions Building and grounds 0 Personnel 0 0 1,250 0 0 General plant administration 0 40 8,000 0 0 Cafeteria: operating loss 10 6,000 2,000 0 Storeroom 0 5 7,500 1,000 0 Machining 5,000 55 38,500 12,000 6,000 Assembly 15,000 140 338,750 18,000 4,000 20,000 250 Total 400,000 33,000 10,000 *Basis used is number of employees 0 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 19 3 Job 89 9 18 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