Question

SandersSanders

Manufacturing Company produces electronic components on a job order basis. Most business is gained through bidding on jobs. Most firms competing with

SandersSanders

bid full cost plus a

3030 %

markup. Recently, with the expectation of gaining more sales,

SandersSanders

dropped its markup from 40% to

3030 %.

The company operates two service departments and two production departments. Manufacturing overhead costs and quantities of activities for each department are shown here:

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(Click the icon to view the data.)

The firm is preparing to bid on job 781, which requires three machine hours per unit produced in the machining department and five direct labor hours per unit produced in the assembly department. The expected direct materials and direct labor costs per unit are

$ 450$450.

Read the requirements

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Requirements

(a)	Allocate the service department costs to the production departments using the direct method.
(b)	Determine the bid price per unit produced for job 781 using the direct method.
(c)	Assume that the costs of the service department incurring the greatest costs are allocated first, and allocate the service department costs to the production departments using the sequential method. When allocating personnel costs, assume the maintenance department has 0 employees.
(d)	Determine the bid price per unit produced for job 781 using the sequential method in part c.

Service Departments Production Departments Item Personnel Maintenance Machining Assembly Overhead costs $ 100,000 $ 200,000 $ 400,000 $ 300,000 Number of employees 5 5 5 40 Maintenance hours 1,500 200 7,500 1,000 Machine hours 0 0 10,000 1,000 Direct labor hours 0 0 1,000 10,000 Costs of the personnel department are allocated on the basis of employees and those of the maintenance department on the basis of maintenance hours. Departmental rates are used to assign costs to products. The machining department uses machine hours, and the assembly department uses direct labor hours for this purpose.

Requirement (a) Allocate the service department costs to the production departments using the direct method.

Begin by allocating the service department costs to the production departments using the direct method. (Round ratio calculations to two decimal places, .XX, and your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Complete all answer boxes.)

	Service departments		Production departments
Direct Method	Personnel	Maintenance	Machining	Assembly
OverheadCosts	$100,000	$200,000	$400,000	$300,000
Allocation of personnel costs
Allocation of maintenance costs
Closing balance

Answer 1

Answer 1 and 2

Maintenance	Total	Ratio	Rounded Ratio	Multiply: Maintenance	Allocated cost
Machining	7,500	7500/8500	0.88	200000	176000
Assembly	1,000	1000/8500	0.12	200000	24000
Total	8,500				200000
Personnel	Total	Ratio	Rounded Ratio	Multiply: Maintenance	Allocated cost
Machining	5	' 5/45	0.11	100000	11000
Assembly	40	' 40/45	0.89	100000	89000
Total	8,500				100000

		Service departments		Production departments
Direct Method		Personnel	Maintenance	Machining	Assembly
Overhead Cost		100000	200000	300000	400000
Allocation of personnel costs		-100000		11000	89000
Allocation of maintenance costs			-200000	176000	24000
Closing balance		0	0	487000	513000
Divided by: Applicable Hours (Machining = Machine hours) (Assembly = Direct labor hours)				10,000	10,000
Overhead rate				$     48.70	$        51.30

				Machining	Assembly
Hours Used in Job				3	5
Multiply: Overhead rate as above				$     48.70	$        51.30
Overhead cost allocated				$ 146.10	$     256.50
Total direct materials and direct labor costs					$     450.00
Overhead cost allocated
Machining				$ 146.10
Assembly				$ 256.50	$     402.60
Total Cost of Job					$     852.60
Add: Profit Markup (Total Cost of Job*30%)					$     255.78
Bid price per unit produced for job					$ 1,108.38

Answer 3 and 4

Maintenance	Total	Ratio	Rounded Ratio	Multiply: Maintenance	Allocated cost
Personnel	1,500	1500/10000	0.15	200000	30000
Machining	7,500	7500/10000	0.75	200000	150000
Assembly	1,000	1000/10000	0.1	200000	20000
Total	10,000				200000
Personal Department Cost after allocation of Maintenance Department (100000+30000)					130000
Personnel	Total	Ratio	Rounded Ratio	Multiply: Maintenance	Allocated cost
Machining	5	' 5/45	0.11	130000	14300
Assembly	40	' 40/45	0.89	130000	115700
Total	8,500				130000

		Service departments		Production departments
Direct Method		Personnel	Maintenance	Machining	Assembly
Overhead Cost		100000	200000	300000	400000
Allocation of maintenance costs		30000	-200000	150000	20000
Allocation of personnel costs		-130000		14300	115700
Closing balance		0	0	464300	535700
Divided by: Applicable Hours (Machining = Machine hours) (Assembly = Direct labor hours)				10,000	10,000
Overhead rate				$    46.43	$        53.57

				Machining	Assembly
Hours Used in Job				3	5
Multiply: Overhead rate as above				$    46.43	$        53.57
Overhead cost allocated				$ 139.29	$     267.85
Total direct materials and direct labor costs					$     450.00
Overhead cost allocated
Machining				$ 139.29
Assembly				$ 267.85	$     407.14
Total Cost of Job					$     857.14
Add: Profit Markup (Total Cost of Job*30%)					$     257.14
Bid price per unit produced for Job					$ 1,114.28