Divide the class into groups of six. Within each group, form pairs. One pair works Requirement 1(a); another pair works Requirement 1(b); and the remaining pair works Requirement 1(c). When the pairs have completed their work, they reform their group, and each pair teaches the other how to complete Requirement 1. Then, the groups discuss Requirement 2. Kare Foods Company specializes in the production of frozen dinners. The first of the two operating departments cooks the food. The second is responsible for packaging and freezing the dinners. The dinners are sold by the case, each case containing 25 dinners. Two support departments provide support for Kare's operating units: maintenance and power. Budgeted data for the coming quarter follow. The company does not separate fixed and variable costs.

The predetermined overhead rate for cooking is computed on the basis of machine hours; direct labor hours are used for packaging and freezing. The prime costs for one case of standard dinners total $16. It takes two machine hours to produce a case of dinners in the cooking department and 0.5 direct labor hour to process a case of standard dinners in the packaging and freezing department. Recently, the Air Force has requested a bid on a three-year contract that would supply standard frozen dinners to Minuteman missile officers and staff on duty in the field. The locations of the missile sites were remote, and the Air Force had decided that frozen dinners were the most economical means of supplying food to personnel on duty. The bidding policy of Kare Foods is full manufacturing cost plus 20 percent. Assume that the lowest bid of other competitors is $48.80 per case.

Required:
1. Prepare bids for Kare Foods using each of the following allocation methods:
a. Direct method
b. Sequential method
c. Reciprocal method
2. Refer to Requirement 1. Did all three methods produce winning bids? If not, explain why. Which method most accurately reflects the cost of producing the cases of dinners?Why?

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Support Departments Producing Departments Packaging and Freesing Cooking Maintenance $340,000 20,000 Power $200,000 40,000 Overhead costs Machine hours Kilowatt-hours Direct labor hours S 75,000 40,000 100,000 5,000 S55,000 20,000 80,000 30,000