Lahoma Uniform Company manufactures a variety of uniforms for the armed services. Lahoma has two producing departments, cutting and sewing. Usually, the uniforms are ordered in batches of 100.

Two support departments provide support for Lahoma’s operating units: maintenance and power. Budgeted data for the coming quarter follow. The company does not separate fixed and variable costs.

Support Departments Producing Departments Maintenance Power Cutting Sewing Overhead costs $240,000 $380,000 $65,000 $87,000 Machine hours —— 30,000 40,000 10,000 Kilowatt-hours 20,000 o- 18,000 162,000 Direct labor hours Lo _- 5,000 30,000 The predetermined overhead rate for cutting is computed on the basis of machine hours; direct labor hours are used for sewing.

Recently, the U.S. Air Force has requested a bid on a three-year contract that would supply fatigues to soldiers at a nearby fort. Fatigues are uniforms consisting of a long-sleeved shirt and pants made of sturdy olive-drab cotton material. The prime costs for a batch of 100 sets of fatigues total $817.50. It takes two machine hours to produce a batch in the cutting department and 50 direct labor hours to sew the 100 uniforms in the sewing department.

Lahoma Uniform Company policy is to bid full manufacturing cost plus 25 lop8 percent.

Required:

1. Prepare bids for Lahoma Uniform Company using each of the following allo- cation methods:

a. Direct method

b. Reciprocal method 2. Which method most accurately reflects the cost of producing the uniforms? Why?