Question

Nora Manha Company has two support departments, human resource and finance and two production departments, cutting and assembly. Budgeted manufacturing overhead costs and budgeted activity in the departments for the current year are shown below:

	Support Departments		Production Departments
	Human Resource	Finance	Cutting	Assembly
Departmental costs	$20,000	$38,000	$200,000	$400,000
Square metres	1,000	2,000	8,000	10,000
Number of employees	10	30	20	30
Machine hours	-	-	40,000	50,000
Labour Hours	10,000	10,000	60,000	80,000

The company uses the step method to allocate support department costs to production departments. The overhead cost of the human resource department is allocated first based on square metres occupied. The overhead cost of the finance department is allocated based on the number of employees. Predetermined overhead rates in both the production departments are based on machine hours.

The product Nora Manha Company produces requires 4 machine hours per unit in the cutting department and 2 machine hours per unit in the assembly department. Prime cost for product is $10 per unit. Orange Company prices its product at full production cost plus 450% as profit margin.

Required:

SHOW CALCULATIONS FOR EACH QUESTION IN THE RESPONSE BOX.

1. Allocate the support departments overhead costs to the production departments and calculate the total budgeted manufacturing overhead cost for each production department.
2. Calculate the predetermined manufacturing overhead rate for the cutting department.
3. Calculate the predetermined manufacturing overhead rate for the Assembly department.
4. Should actual or budgeted support department overhead costs be allocated to the production departments? Briefly explain your answer.
5. Calculate the per unit price of the product.

Answer 1