Titan Toy Case (Departmental method: reciprocal vs step-down method) Titan Toys Company Ltd manufactures two types of toy cars: Racing Devils and Maximus Demons. Titan Toys has two manufacturing departments: The Parts Department manufacture the various toy car components and the Assembly Department assembles the toy cars. Titan Toys is developing departmental overhead rates based on machine hours for its Parts Department and labour hours for Assembly Department. The Parts Department has 25 machines, each of which runs 2,000 hours per year. The assembly department has 50 employees. Each employee works 2,000 hours per year. The budgeted overhead costs for the Parts and Assembly departments are as follows:

1) Assume that Titan Toys allocates the costs of support departments to manufacturing departments using the reciprocal method. Calculate the manufacturing overhead rates for the Parts and Assembly departments?

2) Assume that Titan Toys allocate the costs of support department costs to manufacturing departments using the step-down method. Calculate the manufacturing overhead rates for the Parts and Assembly departments?

3) Which method is preferable? Why?

Budgeted Overhead Costs Parts Department Assembly Department 750,000 600,000 Titan Toys has two support departments: Materials Handling department (Materials) and Power-generating department (Power). The budgeted costs for the Materials and Power departments are as follows: Materials Handling Department Power-generating Department Budgeted Costs 100,000 50,000 The manufacturing departments' overhead rates cannot be determined until the support departments' costs are allocated. The following schedule reflects the use of the Materials Department's and Power Department's output by the various departments. Used B Supplied by Materials (direct labour hours) Power (kilowatt-hours) Materials Power Parts Assembly 250 100 100 150 400 500