aBasis used is number of employees.Required:1.Using the step-down method, allocate support-department costs. Develop overhead rates per direct manufacturing labor-hour formachining and assembly. Allocate the costs of the support departments in the order given in this problem. Use the allocation basefor 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 2.15-35
4.The company evaluates the performance of the operating department managers on the basis of how well they managed their totalcosts, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer from theresults obtained in requirements 1 and 2? Explain.
(6) Costs allocated to operating depts.$59,803$116,377(7) Divide (6) by direct manufacturinglabor-hours÷ 8,000÷32,000(8) Overhead rate per directmanufacturing labor-hour$ 7.475$3.63715-37
3.Comparison of Methods:Step-down method:Job 88:Machining17 × $7.686$130.66Assembly7 × $3.58425.09$155.75Job 89:Machining9 × $7.686$69.17Assembly20 × $3.58471.68$140.85Direct method:Job 88:Machining17 × $7.475$127.08Assembly7 × $3.63725.46$152.54Job 89:Machining9 × $7.475$67.28Assembly20 × $3.63772.74$140.024.The manager of Machining Department would prefer the direct method. The directmethod results in a lower amount of support departments’ costs being allocated to the MachiningDepartment than the step-down method. This is clear from a comparison of the overhead rate, perdirect manufacturing labor-hour, for the Machining Department under the two methods.