Required:

1. a) Use the direct method to allocate the budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department.

   (2 marks)

2. b) Use the step down method to allocate budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department.

   (6 marks)

3. c) Use the reciprocal method to allocate the budgeted costs of the Engineering Department, Computing Department, and Human Resource Department to the Machining Department and the Assembly Department. Your answer should show the total budgeted overhead cost of the production department.

   (12 marks)

4. d) Discuss whether all service department costs should be allocated and why a firm may find it beneficial to use budgeted usage as an allocation basis. In your answer, you should also discuss why managers might be tempted in such situations to underestimate their planned usage and how a firm might remedy this.

   (10 marks)

QUESTION 8 Hillcrest Ltd manufactures satellite navigation systems. The firm has two production departments: the Machining Department and the Assembly Department. The firm also has three support departments: the Engineering Department, the Computing Department and the Human Resources Department. The usage of these three support departments' output for 2017 was as follows: Provider of Services Engineering Computing Human Resources User of Services Support departments Production departments Human Engineering Computing Resources Machining Assembly 0% 0% 0% 45% 55% 10% 0% 5% 25% 60% 3% 5% 0% 42% 50% The budgeted department costs in 2017 were as follows: Support Departments: Engineering 600,000 Computing 125,000 Human Resources 140,000 865,000 Production Departments: Machining Assembly 640,000 240,000 880,000 1,745,000 Total Overhead Costs