promising consistency and high accuracy with tolerances to .0005. Briggs
operates two production departments: a CNC Machining Center and a
Finishing Department. The machining department uses computer numerical
control (CNC) machines that design and manufacture parts according to
desired specification and precision. Human operators manage the equipment
and move the parts from machine to machine. In the Finishing Department,
finishes and coatings (such as electroplating, anodizing, and nickel and zinc
plating) are applied to increase corrosion and wear resistance of metal parts.
Over time, Briggs has developed a good reputation for excellence. Briggs
operates a job costing system for accounting purposes. Two support
departments are used to provide needed services for the machining and
finishing departments. Budgeted annual data pertaining to the overhead for
the various departments is given below:
Maintena Machini Finishi
Power
nce
ng
ng
$400,0
$400,00 $200,0
Fixed
$300,000
00
0
00
270,00
200,00
Variable
130,000 300,000
0
0
$670,0
$700,00 $400,0
Total
$430,000
00
0
00
5,000,00 1,000,0
KWH
4,000,000
0
00
Maintenance hours
2,000
2,000 6,000
Machine hours (practical
100,00
50,000
volume)
0
During the first month of the fiscal year, a potential customer from a
nearby geographical region not normally serviced by Briggs, approached the
company and asked Briggs to bid on a job that would consist of 750 specially
designed parts for a small aircraft engine. The potential customer indicated
that they had already received a bid of $101 per part from another firm but
that if Briggs could beat the price, the job would be theirs.
Barry Norton, owner and manager of Briggs, was interested but was not
certain if the bid could be won as the part specifications required precision
machining. Connie Baker, the firm’s controller was asked to prepare the
initial bid to see if Briggs could be competitive. After consulting with the
production managers of the two departments Connie estimated that the cost
of direct materials and direct labor would be $28,000 and $6,000
respectively. She was confident that overhead would be the determining
factor. Briggs uses departmental rates based on machine hours. Connie uses
the direct method to assign costs of support departments to the producing departments. She estimates that the job (Job 725) would use 1,000 and 500
machine hours in Machining and Finishing, respectively. Required:
Using the direct method, determine the budgeted overhead costs for
a Machining and Finishing. (Round allocation ratios to six decimal places
. and costs assigned to the nearest dollar. Use your rounded values in
subsequent requirements.)
Machining:
$
Budgeted variable
Item1
overhead
Budgeted fixed overhead
Total
Finishing:
Budgeted variable
overhead Item2 $
Item3 $
Item4 Budgeted fixed overhead
Total Item5 $
Item6 Calculate the variable and fixed overhead rates for each department.
b
(Round rates to the nearest cent. Use your rounded values in subsequent
.
requirements.)
per machine hour
Machining:
$
Variable overhead rate
Item7
Fixed overhead rate
Total overhead rate
Finishing:
Variable overhead
rate
Fixed overhead rate Item8 $
Item9 $
Item10
Item11 $ Total overhead Item12 rate Prepare a simplified job sheet for Job 725. (Round overhead costs
c
assigned to the nearest dollar. Use your rounded values in subsequent
.
requirements.)
Job 725
$
DM
Item13 DL Item14 VOH Item15 FOH Item16 $ Job
Cost Item17 Briggs uses cost plus 20% for bids. Calculate the per unit bid price for Job
d
725. (Round to the nearest cent. Use your rounded values in subsequent
.
steps.)
Unit Price $
Item18 Summary Questions:
In assigning support department costs to the producing departments, the
direct method
1
– Select your answer .
.
Item19 Jobs are assigned overhead by
2
. – Select your answer – .
Item20 Check My Work (3 remaining)
Icon Key Required:
The
method takes into account all
– Select your answer Item1
a
. interactions of the support departments before allocating costs to the
producing departments.
Use the method of allocation that fully considers support department
interactions to assign support department costs to the producing
b departments. Round allocation ratios to three decimals and the costs
. allocated to the nearest dollar. Use a single charging rate (assign total
support costs–no need to distinguish between fixed and variable costs).
(Use your rounded values in subsequent requirements.)
Machining
department:
$ Total budgeted
overhead Item2 Finishing department:
$ Total budgeted
overhead: Item3 Calculate the departmental overhead rates that reflect full interaction of
support departments (Round to the nearest cent. Use your rounded values
c
in subsequent requirements.). Allocate the total support overhead of each
.
support department using you chosen method. Only the total overhead
rate needs to be calculated.
Machinin
g:
Finishing
: $ per machine
Item4 hour
per machine $
Item5 hour Using the new departmental rates plus 20%, recalculate the unit bid price
d
for Job 725 (Round to the nearest cent. Use your rounded values in
.
subsequent requirements.):
Unit Price: $
Item6 Summary Questions:
The new unit bid price using the method
– Select your answer – 1
of allocation was $
. Item7 lower than the bid price using the
Item8 direct method.
Suppose that the best competitor bid was $103. In this case, the
method would have produced a bid that
2 – Select your answer Item9
.
was
by $
per unit.
– Select your answer – . Item10 Item11 Calculate a new bid price for Job 725 (round departmental rates and bid
price to the nearest cent).
Bid price: $
per unit
Item1 b
Calculate the cost of power acquisition for the maintenance department
.
Power cost for maintenance department: $
Item2 Summary Questions:
By increasing efficiency through the use of a cheaper input, the bid price
is
than the best competitor price by $
1
– Select your answer Item3
.
(Round your dollar value answers to the nearest cent.)
Item4 The reduction in direct maintenance costs (fixed and variable) because of
2
eliminating the power department totals $
.
.
Item5
: The current direct cost of maintenance
– Select your answer – Item6 ($520,000) is the original direct costs less the savings from no longer
having to service the power department plus the direct costs of outside
power acquisition.
