XYZ Ltd. manufactures racing car accessories in two separate departments: Cutting and Finishing. The following data relate to the year ended 2019:

Cutting Department

Finishing Department

Total

Budgeted manufacturing overhead

$60,000

$120,000

$180,000

Actual manufacturing overhead

$54,000

$108,000

$162,000

Budgeted machine hours

10,000

80,000

90,000

Actual machine hours

15,000

45,000

60,000

Budgeted direct labour hours

30,000

30,000

60,000

Actual direct labour hours

33,750

21,050

54,800

One of the XYZ's major products, the SM 321 Racing Car Steering Wheel, has the following production requirements: Product: SM 321 Racing Car Wheel Steering

Cutting Department

Finishing Department

Total

Machine hours

5.0

8.0

13.0

Direct labour hours

8.0

2.0

10.0

Required:

(a)Calculate the manufacturing overhead cost of the SM 321 Racing Car Wheel Steering using:

(i)a predetermined plant-wide rate based on direct labor hours.

(ii)a predetermined plant-wide rate based on machine hours.

(iii)predetermined departmental rates based on direct labor hours for the Cutting Department and on machine hours for the Finishing Department.

(b)Which of these three estimates of overhead cost is likely to be the most accurate? Explain.

(c)Calculate the manufacturing overhead cost of the SM 321 Racing Car Steering Wheel, using an actual costing system and departmental overhead rates based on labour hours for Cutting and on machine hours for Finishing. Explain why cost drivers must be used with actual costing, as well as with normal costing.

(d)Answer the following questions.

(i)Describe the three methods of allocating the costs of support departments to operating department.

(ii)What is conceptually the most defensible method for allocating support-department costs? Why?