The Eastern Summit Company has prepared department overhead budgets for budgeted-volume levels before allocations as follows:

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

Required:
1. Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour for machining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation base for each support department 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.
Direct Manufacturing Labor-Hours
Machining Assembly
Job 88..............................18........................8
Job 89..............................10.......................20
4. The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from the results obtained in requirements 1 and 2? Explain.

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Support departments: Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom $45,000 7,800 36,120 20,670 8300 $127 890 Operating departments Machining Assembly S36,000 60,000 96,000 $223,890 Total for support and operating departments Direct Manufacturing Square Feet of Floor Space Manufacturing Indirect Number of EmployeesOccupiedLabor-Hours Req Number of Department Building and grounds Personnel General plant administration Cafeteria: operating loss Storeroom Machining Assembly Total 2,500 12,000 4,500 6,000 22,000 203,000 250,000 40 10 10,000 30,000 40,000 3,000 2,000 13,000 26,000 44,000 10,000 8,300 18,300 140