Antioch Manufacturing produces machine parts on a job- order basis. Most business is obtained through bidding. Most firms competing with Antioch bid full cost plus a 20% markup. Recently, with the expectation of gaining more sales, Antioch reduced its markup cost from 25% to 20%. The company operates two service departments and two producing departments. The budgeted costs and the normal activity levels for each department are as follows:

Service Department Producing Department

A B C D

Overhead Cost $100,000 $200,000 $100,000 $50,000

Number of Employees 8 7 30 30

Maintenance hours 2,000 200 6,400 1,600

Machine hours 10,000 1,000

Labour hours 1,000 10,000

The direct costs of department A are allocated on the basis of employees, those of department B are allocated on the basis of maintenance hours. Departmental overhead rates are used to assign costs to products. Department C uses machine hours and Department D uses labour hours.

The firm is preparing to bid on a job (Job K) that requires the machine hours per unit produced in Department C and no time in Department D. The expected prime costs per unit are $67.

Required:

(i) Allocate the overhead costs to the producing departments using the direct method

(ii) What will the bid be for Job K if the direct method I of allocation is used?

(iii) Allocate the overhead costs to the producing departments using the sequential method.

(iv) Explain the difference between the direct method and the reciprocal method.

(v) Explain the difference between the direct method the sequential method.