FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 |
|
|
$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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