DIRECT METHOD, RECIPROCAL METHOD, OVERHEAD RATES Barrylou Corporation is developing departmental overhead rates based on direct labor hours for its two production departments—molding and assembly. The molding department employs 20 people, and the assembly department employs 80 people. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the molding department are budgeted at $200,000, and the assembly department costs are budgeted at $320,000. Two support departments—repair and power—directly support the two production departments and have budgeted costs of $48,000 and $250,000, respectively. The production departments’ overhead rates cannot be determined until the support departments’ costs are properly allocated. The following schedule reflects the use of the repair department’s and power department’s output by the various departments.

Â	Repair	Power	Molding	Assembly
Repair hours	—	1,000	1,000	8,000
Kilowatt-hours	240,000	—	840,000	120,000

Required:

1. Calculate the overhead rates per direct labor hour for the molding department and the assembly department using the direct allocation method to charge the production departments for support department costs.

2. Calculate the overhead rates per direct labor hour for the molding department and the assembly department using the reciprocal method to charge support department costs to each other and to the production departments.

3. Explain the difference between the methods, and indicate the arguments generally presented to support the reciprocal method over the direct allocation method.