KIT Corporation operates in a highly competitive market where jobs are obtained by bids. KIT uses a policy of bidding full cost plus a 25 percent markup. The company operates two support departments and two producing departments. Budgeted costs and normal activity are as follows: Support Departments				Producing Departments
1		2		X		Z
Budgeted overhead	$90,000		$120,000		$300,000		$500,000
Maintenance hours (dept. 2)	1,000		-		2,200		1,800
Number of employees (dept. 1)	-		18		40		60
Direct labor hours	-		-		15,000		3,000
Machine hours	-		-		4,000		20,000

The direct costs of Department 1 are allocated on the basis of employees; those of Department 2 are allocated on the basis of maintenance hours. Department X uses direct labor hours to assign overhead costs to products. Department Z uses machine hours.

REQUIRED

(a) Allocate the support-department costs to the producing departments using the sequential or step-down method beginning with Support Department 2. (7 marks)

(b) Calculate the predetermined overhead rate for each producing departments. (4 marks)

(c) The firm is bidding on a job that is estimated to require $100 per unit in direct materials and $150 per unit in direct labor. Each unit would require eight labor hours in Department X and ten machine hours in Department Z. Determine the bid price per unit for the job. (9 marks)

Answer rating: 100% (QA)

Answer a Allocation of Cost Using StepDown Method Support Department Producing ... View the full answer