Problem -
Briggs Precision is a small firm that manufactures precision parts, 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:
|
Power
|
Maintenance
|
Machining
|
Finishing
|
|
Fixed
|
$400,000
|
$300,000
|
$400,000
|
$200,000
|
|
Variable
|
270,000
|
130,000
|
300,000
|
200,000
|
|
Total
|
$670,000
|
$430,000
|
$700,000
|
$400,000
|
|
KWH
|
|
4,000,000
|
5,000,000
|
1,000,000
|
|
Maintenance hours
|
2,000
|
|
2,000
|
6,000
|
|
Machine hours (practical volume)
|
|
|
50,000
|
100,000
|
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:
a. Using the direct method, determine the budgeted overhead costs for Machining and Finishing. (Round allocation ratios to six decimal places and costs assigned to the nearest dollar. Use your rounded values in subsequent requirements.)
b. Calculate the variable and fixed overhead rates for each department. (Round rates to the nearest cent. Use your rounded values in subsequent requirements.)
c. Prepare a simplified job sheet for Job 725. (Round overhead costs assigned to the nearest dollar. Use your rounded values in subsequent requirements.)
d. Briggs uses cost plus 20% for bids. Calculate the per unit bid price for Job 725. (Round to the nearest cent. Use your rounded values in subsequent steps.)