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Kay and Dee Manufacturing (K+D) has three business lines:

• Repair and Overhead (R+O): Repair of truck transmissions.
• Manufacturing: manufacturing of custom truck transmission parts
• Chemical Treating: cleaning of old parts

They also have three support departments.Major activities of each department are:

• Human Resources (HR): Payroll, HR staff, employee services, Union/Management relations.Costs for this service department are allocated based on Headcount.
• Facility: buildings, building maintenance and related building costs.Costs for this service department are allocated based on area occupied.
• Main Office (HQ): salaries for the President, VP, and Finance department.Costs for this service department are allocated based on Direct Labour hours.

Other financial information is in Appendix

REQUIRED:

1.Briefly comment on the cost drivers for the support departments.(ie. Do you think they are appropriate, or can you recommend something better?)

2.Using the Direct Method, allocate overhead costs from the support departments to the business lines.

3.Using the Step-down method, allocate overhead costs from the support departments to the business lines in the following order:

• 1^st Building
• 2^nd HR
• 3^rd HQ

4.Using the Reciprocal Method, allocate overhead costs from the support departments to the business lines.

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