Bender Automotive Works Inc. manufactures a variety of front-end assemblies for automobiles. A front-end assembly is the unified front of an automobile that includes the headlamps, fender, and surrounding metal/plastic. Bender has two producing departments: Drilling and Assembly. Usually, the front-end assemblies are ordered in batches of 100. Two support departments provide support for Bender’s producing departments: Maintenance and Power. Budgeted data for the coming quarter follow. The company does not separate fixed and variable costs. Support Departments Producing Departments Maintenance Power Drilling Assembly Overhead costs $320,000 $400,000 $163,000 $90,000 Machine hours - 22,500 30,000 7,500 Kilowatt-hours 40,000 - 36,000 324,000 Direct labor hours - - 5,000 40,000 The predetermined overhead rate for Drilling is computed on the basis of machine hours. Direct labor hours are used for Assembly. Recently, a truck manufacturer requested a bid on a 3-year contract that would supply front-end assemblies to a nearby factory. The prime costs for a batch of 100 front-end assemblies are $1,817. It takes two machine hours to produce a batch in the drilling department and 50 direct labor hours to assemble the 100 front-end assemblies in the assembly department. Bender’s policy is to bid full manufacturing cost, plus 15%. (Note: Round allocation ratios to four decimal places, allocated support department cost to the nearest dollar, and the job cost components to the nearest cent.) REQUIRED: Prepare bids for Bender by using each of the following allocation methods: (a) direct method and (b) sequential method, allocating power costs first. (Note: Round allocation ratios to four decimal places, allocated support department cost to the nearest dollar, and the job cost components to the nearest cent.) Which method most accurately reflects the cost of producing the front-end assemblies? Why?
Bender Automotive Works Inc. manufactures a variety of front-end assemblies for automobiles. A front-end assembly is the unified front of an automobile that includes the headlamps, fender, and surrounding metal/plastic. Bender has two producing departments: Drilling and Assembly. Usually, the front-end assemblies are ordered in batches of 100.
Two support departments provide support for Bender’s producing departments: Maintenance and Power. Budgeted data for the coming quarter follow. The company does not separate fixed and variable costs.
|
|
Support Departments |
|
Producing Departments |
||
|
|
Maintenance |
Power |
|
Drilling |
Assembly |
|
Overhead costs |
$320,000 |
$400,000 |
|
$163,000 |
$90,000 |
|
Machine hours |
- |
22,500 |
|
30,000 |
7,500 |
|
Kilowatt-hours |
40,000 |
- |
|
36,000 |
324,000 |
|
Direct labor hours |
- |
- |
|
5,000 |
40,000 |
The predetermined overhead rate for Drilling is computed on the basis of machine hours. Direct labor hours are used for Assembly.
Recently, a truck manufacturer requested a bid on a 3-year contract that would supply front-end assemblies to a nearby factory. The prime costs for a batch of 100 front-end assemblies are $1,817. It takes two machine hours to produce a batch in the drilling department and 50 direct labor hours to assemble the 100 front-end assemblies in the assembly department.
Bender’s policy is to bid full
REQUIRED:
- Prepare bids for Bender by using each of the following allocation methods: (a) direct method and (b) sequential method, allocating power costs first. (Note: Round allocation ratios to four decimal places, allocated support department cost to the nearest dollar, and the job cost components to the nearest cent.)
- Which method most accurately reflects the cost of producing the front-end assemblies? Why?
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