COST ACCOUNTING-Cost allocation to divisions. Holbrook Corporation has three divisions

| January 30, 2017

Question
15-30 Allocating costs of support departments; step-down and direct methods. The Central Valley Company
has prepared department overhead budgets for budgeted-volume levels before allocations as follows: Page 650
Support departments:
Building and grounds $ 45,000.00 2. Using the direct method, rework requirement 1.
Personnel 300 3. Based on the following information about two jobs, determine the total overhead costs for each job by
General plant administration 37,320 using rates developed in (a) requirement 1 and (b) requirement 2.
Cafeteria: operating loss 970
Storeroom 9,990 $ 93,580.00 Direct Manufacturing Labor-Hours
Machining Assembly
Operating departments: Job 88 17 7
Machining $ 36,600.00 Job 89 9 20
Assembly 46,000 $ 82,600.00
Total for support and operating departments $ 176,180.00 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
Management has decided that the most appropriate inventory costs are achieved by using individualdepartment Department, which allocation method would you prefer from the results obtained in requirements 1
overhead rates. These rates are developed after support-department costs are allocated to and 2? Explain.
operating departments.
Bases for allocation are to be selected from the following:
Department Direct Manufacturing Labor-Hours Number of Employees Square Feet of Floor Spcace Occupied Manufacturing Labor-Hours Number of Requisitions
Buidings and grounds 0 0 0 0 0
Personnel 0 0 2,500 0 0
General plant administration 0 40 12,000 0 0
Cafeteria: operating loss 0 10 5,000 3,000 0
Storeroom 0 5 6,000 2,000 0
Machining 8,000 55 22,000 13,000 6,000
Assembly 32,000 140 202,500 26,000 4,000
Total 40000 250 250000 44000 10000
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.

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