Grayslake Manufacturing produces machine parts on a job-order basis. Most business is obtained through
Question # 00055574
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Updated on: 03/15/2015 02:55 AM Due on: 06/30/2015
Grayslake Manufacturing produces machine parts on a job-order basis. Most business is obtained through
bidding. Most firms competing with Grayslake Manufacturing bid full cost plus a 20% markup. Recently, with the expectation of gaining more sales, Grayslake Manufacturing reduced its markup from 25 to 20%. The company operates two service departments and two
producing departments. The budgeted costs and the normal activity levels for each department are as follows: Dept A Dept B Dept C Dept D Overhead costs $420,000 $600,000 $920,000 $1,770,000 Number of employees 7 30 30 Maintenance hours 2.000 6,400 1,600 Machine
hours 32,200 6,000 Direct Labor hours 20,000 30,000 • Costs of Department A are allocated on the basis of employees. • Costs of Department B are allocated on the basis of maintenance hours. • Departmental overhead rates are used to assign costs to products.
Department C uses machine hours and Department D uses direct labor hours. • The firm is preparing to bid on a job (Job K) that requires 120 machine hours in Department C and 165 direct labor hours in Department D. Expected prime costs are $12,500. Required:
a. Allocate the service costs to the producing departments using the direct method. b. What will the bid be for Job K if the direct method of allocation is used? c. Allocate the service costs to the producing departments using the sequential method. d. What
will the bid be for Job K if the sequential method of allocation is used? e. Allocate the service costs to producing departments using the reciprocal method. f. What will the bid be for Job K if the reciprocal method of allocation is used?
bidding. Most firms competing with Grayslake Manufacturing bid full cost plus a 20% markup. Recently, with the expectation of gaining more sales, Grayslake Manufacturing reduced its markup from 25 to 20%. The company operates two service departments and two
producing departments. The budgeted costs and the normal activity levels for each department are as follows: Dept A Dept B Dept C Dept D Overhead costs $420,000 $600,000 $920,000 $1,770,000 Number of employees 7 30 30 Maintenance hours 2.000 6,400 1,600 Machine
hours 32,200 6,000 Direct Labor hours 20,000 30,000 • Costs of Department A are allocated on the basis of employees. • Costs of Department B are allocated on the basis of maintenance hours. • Departmental overhead rates are used to assign costs to products.
Department C uses machine hours and Department D uses direct labor hours. • The firm is preparing to bid on a job (Job K) that requires 120 machine hours in Department C and 165 direct labor hours in Department D. Expected prime costs are $12,500. Required:
a. Allocate the service costs to the producing departments using the direct method. b. What will the bid be for Job K if the direct method of allocation is used? c. Allocate the service costs to the producing departments using the sequential method. d. What
will the bid be for Job K if the sequential method of allocation is used? e. Allocate the service costs to producing departments using the reciprocal method. f. What will the bid be for Job K if the reciprocal method of allocation is used?
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Solution: Grayslake Manufacturing produces machine parts on a job-order basis. Most business is obtained through