Activity 11-Vintage Manufacturing - Solution PDF

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GEIManagement Accounting Course 2019- 1 st semester Group AActivity 11Vintage ManufacturingSuggested solutionAllocation of Support-Department Costs Usingthe Direct, Sequential, and Reciprocal Methods1Vintage Manufacturing produces machine parts on a job-order basis. Most business is obtained through...

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GEI Management Accounting Course 2019-2020 1 st semester Group A1

Activity 11 Vintage Manufacturing Suggested solution Allocation of Support-Department Costs Using the Direct, Sequential, and Reciprocal Methods Vintage Manufacturing produces machine parts on a job-order basis. Most business is obtained through bidding. Most firms competing with Vintage bid full cost plus a 20 percent markup. Recently, with the expectation of gaining more sales, Vintage reduced its markup from 25 percent to 20 percent. The company operates two service or support departments and two operating or producing departments. The budgeted costs and the normal activity levels for each department follow.

The direct costs of Department A are allocated on the basis of employees, while those of Department B are based on maintenance hours. Departmental overhead rates are used to assign costs to products. Department C uses machine hours, and Department D uses labor hours. The firm is preparing to bid on a job (Job K) that requires three machine hours per unit produced in Department C and no time in Department D. The expected prime costs (direct materials and direct labor) per unit are $67. Required: 1. Allocate the support costs to the producing departments using the direct method. 2. What will the bid be for Job K if the direct method of allocation is used? 3. Allocate the support costs to the producing departments using the sequential method. 4. What will the bid be for Job K if the sequential method is used? 5. Allocate the support costs to the producing departments using the reciprocal method. 6. What will the bid be for Job K if the reciprocal method is used?

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Suggested solution:

GEI Management Accounting Course 2019-2020 1 st semester Group A1

Activity 11 Vintage Manufacturing Suggested solution Allocation of Support-Department Costs Using the Direct, Sequential, and Reciprocal Methods

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