Section 1: Overhead Allocation Methods 18 marks

Revachol Ltd manufactures two types of disco balls: Plastic and Glass. The business has two support departments (engineering and quality control) and two operating departments (moulding and assembly). Departmental overhead rates are applied based on machine hours for the moulding department and direct labour hours for the assembly department. The annual budgeted level of direct labour hours and machine hours for the two operating departments are as follows:

	Direct labour hours	Machine hours
Moulding	10,500	7,500
Assembly	6,200	9,000

The annual budgeted overhead costs are as follows:

Engineering	Quality control	Moulding	Assembly
$ 30,000	$ 20,000	$ 40,000	$ 80,000

The following schedule notes the allocation bases used to allocate support department costs and reflects each departments use of support department services:

	Provider of the service
	Engineering (Number of service requests)	Quality control (Number of inspections)
Engineering		120
Quality control	160
Moulding	110	580
Assembly	130	900

The Plastic model requires direct material costing $10 per unit and direct labour costing $40 per unit. A unit of Plastic is produced 0.5 machine hours in the moulding department and 1.5 labour hours in the assembly department. The Glass model requires direct material costing $40 per unit and direct labour costing $80 per unit. A unit of Glass is produced using 0.5 machine hours in the moulding department and 2 labour hours in the assembly department.

Required:

Use the reciprocal services method to allocate support department costs.

Calculate the overhead cost per unit of the Glass model. (15 marks)

Calculate the unit product cost of the Glass model. (3 marks)