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Allocating Multiple Support Cost

AJC Foods produces frozen dinners with two operating departments for cooking and packaging. Support is provided by maintenance and power departments. Budget data is provided for overhead costs, machine hours, kilowatt hours, and direct labor hours across the departments. The cost to produce one case of standard dinners is P16 using two machine hours for cooking and 0.5 direct labor hours for packaging. The Air Force has requested a three year contract bid to supply frozen dinners to remote sites, with Kare Foods' bidding policy being full cost plus 20%. Kare's bid prices using different methods were P49.12, P48.50, and P48.60.

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355 views1 page

Allocating Multiple Support Cost

AJC Foods produces frozen dinners with two operating departments for cooking and packaging. Support is provided by maintenance and power departments. Budget data is provided for overhead costs, machine hours, kilowatt hours, and direct labor hours across the departments. The cost to produce one case of standard dinners is P16 using two machine hours for cooking and 0.5 direct labor hours for packaging. The Air Force has requested a three year contract bid to supply frozen dinners to remote sites, with Kare Foods' bidding policy being full cost plus 20%. Kare's bid prices using different methods were P49.12, P48.50, and P48.60.

Uploaded by

NCT
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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AJC 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 old by the case, each case containing 25 dinners. Two support departments provide support
for AJC’s operating units: Maintenance and Power. Budgeted data for the coming quarter are given
below.

Support Department Operating Department


Maintenance Power Cooking Packaging
Overhead Costs P340,000 P200,000 P75,000 P55,000
Machine Hours ---------- 40,000 40,000 20,000
Kilowatt Hours 20,000 ----------- 100,000 80,000
Direct Labor Hours ---------- ----------- 5,000 30,000

The predetermined rate for Cooking is computed based on machine hours; direct labor hours are used for
Packaging and Freezing. The prime costs for one case of Standard dinner total P16. It takes two machine
hours to produce a case of dinners in the Cooking Department and .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 will supply standard frozen dinners to AFP Officers and staff on duty in the
field. The locations of the 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
cost plus 20 %.

Kare’s Bid Price using direct method. P49.12

Kare’s Bid Price using step method. P 48.50

Kare’s Bid Price using reciprocal method. P48.60

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