Grummond Engine Repair has recently adopted ABC for its two support groups, Engineering and Finance. Engineering is charged out on engineering hours (which includes computer support), while Finance is charged out on number of transactions. The following table summarizes key data for the company and its subunits.

REQUIRED:

a. Assign all of the support overhead to the revenue centers using direct cost assignment.

b. Assign all of the support overhead using sequential assignments.

c. Assign all of the support overhead using reciprocal assignments.

d. Develop overhead rates per repair hour for the revenue centers.

e. Which method of assigning overhead is best? Why?

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Small Large Engine Repair Engineering Finance Engine Repair Overhead $600,000 $350,000 $500,000 $650,000 Number of engineering hours -0- 800 2,400 2,800 Number of transactions 20,000 -0- 40,000 40,000 Repair hours -0- - 0- 8,000 12,000