The Central Valley Company has prepared division overhead budgets for
The Central Valley 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:
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.
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 Division, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.
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