Belgrave Ltd is a small manufacturing entity based in eastern end of Melbourne. The company has two operating departments and five support departments (as noted in the table below). Belgrave Ltd prepares monthly overhead budgets for its departments based on budgeted volume levels for each month. The budgeted costs of the departments for the month of February 2022 are as follows:

Amount ($)

34,700 48,900

12,500 10,000 26,090

1,640 Warehouse 2,670

The Production department requires 5,000 machine hours per month and the Finishing department requires 15,000 machine hours per month. Warehouse requisitions for the month of February 2022 as estimated to be as follows: Production department: 2,000 requisitions; Finishing department: 1,000 requisitions

Departments

Operating departments

Production

Finishing

Support departments

Cleaning

Human resources

General plant administration

Cafeteria

Department	Number of employees	Square meters of floor space
Cleaning	5	100
Human resources	2	200
General plant administration	35	700
Cafeteria (operating loss)	10	400
Warehouse	5	700
Production	50	3,000

Finishing 93

Case study 1 continued on next page

4,900

Labour hours

750 250 0 1,000 1,000 8,000 16,000

ACCT1068 Sem 1 2022 Assessment 1

Page1of2

RMIT Classification: Trusted

Required:

(1) Allocate support department costs to operating departments using direct method. Use the allocation base for each support department you think is most appropriate. Develop overhead rates per machine hour for the operating departments using total cost of the operating departments (after including support department costs).

(2) Allocate support department costs to operating departments using step down method. Allocate the support department costs in the same sequence of the support departments given in the case study. Use the allocation base for each support department you think is most appropriate. Develop overhead rates per machine hour for the operating departments using total cost of the operating departments (after including support department costs).

(3) Belgrave Ltd evaluates the performance of the operating department managers based on how well they managed their total cost (including allocated costs). As the manager of Production department, which allocation method would you prefer from the results obtained in requirements (1) and (2) above? Explain your answers.