Gamma Sdn Bhd (GSB) is a manufacturer of machine parts for washing machines. GSB has five support departments and two operating departments. Those support departments include Building and Grounds, Personnel, General Plant Administration, Cafeteria, and Storeroom. While the operating departments consist of Machining and Assembly. Moreover, the company has prepared the department overhead budgets for the budgeted-volume levels before allocations as follows:
Support Departments: Building and grounds RM45,000 Personnel 300 General plant administration 37,320 Cafeteria: operating loss 970 Storeroom E90 RM 93,580 Operating Departments: Machining RM36,600 Assembly 4A000 82.600 Total for support and operating departments RM176.180
The top management of GSB has decided that the most appropriate inventory costs are achieved by using individual department overhead rates. These rates are developed after the support-department costs are allocated to operating departments. Bases for allocation are to be selected from the following:
Department Direct Manufacturing Labor-Hours Number of Employees Square Feet of Floor Space Occupied Manufacturing Labor-Hours Number of Requisitions Building 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 40,000 250 250,000 44,000 10,000
&Basis used is the number of employees
6
REQUIRED:
BKAM2013 MANAGEMENT ACCOUNTING I
(a) As the operating department manager, you have been asked by the top management of GSB to allocate the support-department costs using the step-down method. You are required to determine the overhead rates per direct manufacturing labor-hours for Machining and Assembly, and then allocate the costs of the support departments in the order given (follow the list). In doing this, you are given the authority to select the most appropriate allocation base for each support department. Show all workings.
(b) Using the direct method, rework requirement (a). Show all workings.
(15 Marks)
(11 Marks)
(c) Based on the following information about two jobs (Job 11 and 12), determine the total overhead costs for each Job 11 and Job 12 by using those rates developed in requirement (a) and requirement (b) above. Show all workings.
Direct Manufacturing Labor-Hours
Machining Assembly
Job 11
Job 12
17 7
9 20
(6
(d) GSB evaluates the performance of the operating department managers based on h they manage their total costs, including allocated costs. As the manager of the Mac Department, which allocation method would you prefer from the results obtained requirements (a) and (b)? Explain TWO (2) reasons for your answer.

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