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?

Managerial Accounting
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ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
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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

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:

 

  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.)

 

  1. Which method most accurately reflects the cost of producing the front-end assemblies? Why?
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