The following data on overhead applies to ABC Manufacturing Company that manufactures electrical components in three production departments: cutting (C-1), moulding (D-1), finishing (F-1). There are two service departments, the Human resources Department and the Purchasing Department.

		Service Dept's			Production Dept's
		Human Resources	Purchasing		C-1	D-1	F-1		Total
Budgeted Overhead		$40 000	$90 000		$70 000	$290 000	$370 000		$860 000
Human resources *			200		900	600	1 000		2 700
(employees)
Purchasing **		100			400	200	300		1 000
(Purchase orders)

* The human resources department costs are allocated on the basis of the number of employees.

** The purchasing department costs are allocated on the basis of number of purchase orders.

Required:

Using employees as the application base for the Human Resources department and purchase orders issued for the Purchasing Department, apply the overhead costs from these service departments to the production departments, using the following two methods.

1. The Step method, the ranking order is determined on the basis of the highest to lowest costs of services provided to other departments.

In addition, determine the factory overhead application rates for the producing departments. The bases used are 40 000 machine hours for C-1, 25 000 machine hours for D-1, and 20 000 labour hours for F-1.

(b) The Reciprocal method.

Answer rating: 100% (QA)

a The Step method The ranking order is as follows Human Resources 2 700 Purchas... View the full answer