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 Assembly $ 90,000 7,500 324,000 Maintenance Power Drilling Overhead costs $320,000 $400,000 $163,000 30,000 36,000 5,000 Machine hours Kilowatt-hours 22,500 40,000 Direct labor hours 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: 1. 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.) 2. CONCEPTUAL CONNECTION 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 Assembly $ 90,000 7,500 324,000 Maintenance Power Drilling Overhead costs $320,000 $400,000 $163,000 30,000 36,000 5,000 Machine hours Kilowatt-hours 22,500 40,000 Direct labor hours 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: 1. 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.) 2. CONCEPTUAL CONNECTION Which method most accurately reflects the cost of producing the front-end assemblies? Why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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How do i identify and explain the most accurate method for direct and step down method?
Transcribed Image Text: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
Maintenance
Producing Departments
Assembly
$ 90,000
Power
Drilling
Overhead costs
$320,000
$400,000
$163,000
Machine hours
22,500
Kilowatt-hours
Direct labor hours
30,000
36,000
5,000
7,500
324,000
40,000
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 10o 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:
1. 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.)
2. CONCEPTUAL CONNECTION Which method most accurately reflects the cost of producing the front-end assemblies?
Why?
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