Jackson Instrument Company manufactures gauges for the construction industry. The company has two production departments: Machining and Finishing. There are also three support departments: Human Resources (HR), Maintenance and Design. The budgeted overhead costs for the year for each department are as follows:

HR......................................................$250,000

Maintenance.............................................230,000

Design...................................................350,000

Machining...............................................800,000

Finishing................................................400,000

The budgeted machine hours for the Machining Department are 30,000 and the budgeted direct labour hours for the Finishing Department are to coo. These activities are used to allocate manufacturing overhead costs to products in the two departments. The usage of the support departments' output for the year is as follows:

Required:
1. Use the direct method to allocate support department costs to production departments, and determine the predetermined manufacturing overhead rates for the two production departments.
2. Explain the sequence that should be used to allocate the support department costs to production departments using the step-down method.
3. Use the step-down method to allocate support costs to production departments, and determine the predetermined manufacturing overhead rates for the two production departments.

Transcribed Image Text:

Provision of Service Output (hours of service) Provider of the service User of the service Maintenance Design HR HR Maintenance 500 Design Machining Finishing 500 500 4 000 5 000 3 500 4 000 8 000 4 500 1 500 10 000 Total 6 000