The Central Valley Company has prepared division overhead budgets for budgeted-volume levels before allocations as follows:

Management has decided that the most appropriate inventory costs are achieved by using individual division overhead rates. These rates are developed after support division costs are allocated to operating divisions.
Bases for allocation are to be selected from the following:

REQUIRED
1. Using the step-down method, allocate support division costs. Develop overhead rates per direct manufacturing labour-hour for machining and assembly. Allocate the costs of the support divisions in the order given in this problem. Use the allocation base for each support division you think is most appropriate.
2. Using the direct method, rework requirement 1.
3. Based on the following information about two jobs, determine the total overhead costs for each job by using rates developed in (a) requirement 1 and (b) requirement 2.

4. The company evaluates the performance of the operating division managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Division, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.

Support departments: Building and grounds Personnel General plant administration Cafeteria: ope Storeroom S10,000 1,000 26,090 1,640 2,670 rating loss S 41,400 Operating departments Machining Assembly 34,700 48,900 83,600 S125,000 Total for support and operating departments Direct Square Metres Manufacturing Number of of Flo or Space Manufacturing Number of Labour-Hours Employees Occupied Labour-Hours Requisitions Department Building and grounds Personnel" General plant 2,000 administration Cafeteria: 35 7,000 10 operating loss Storeroom Machining Assemblv Total 5,000 15,000 20,000 50 100 200 4,000 7,000 30,000 50,000 100,000 1,000 1,000 8,000 17,000 27,000 2,000 1,000 3,000 Basis used is number of employees Direct Manufacturing Labour-Hours Machining Assembly 18 Job 88 Job 89 17