3-46 (Job bid price, direct, sequential, and reciprocal allocations)
Small Pump Manufacturer Service Departments Production Departments Item
Maintenance Power Casting Assembly Support Costs $750,000 $450,000
$150,000 $110,000 Machine Hours 0 80000 80000 40000 Kilowatt-hours 40000
0 200000 160000 Direct Labor Hours 0 0 100000 60000 Management
allocates maintenance department costs using machine hours Management
allocates power deptepartment costs using kilowatt hours Separate cost
driver rates are determined on machine hours basis for casting dept and
on direct labor hours basis for assembly dept 1 machine hour per pump
manufacture in casting department .5 labor hours to assemble pump in
assembly dept Direct labor and material costs = $32.00 per pump
Potential Sell: 2 year contract to purchase 1000 pumps every month Add
25% markup to full manufacturing cost to determine bid BID PRICE for. a)
Direct Method b) Sequential Method begins by allocating maintenance
department costs c) Reciprocal Method
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