Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $2,000. It seems we're either too high to get the job or too low to make any money on half the jobs we bid." Teledex Company manufactures products to customers' specifications and uses a job order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year Manufacturing overhead Direct labor Department Fabricating Machining $ 169,250 $ 422.000 $ 211,000 $ 195,500 Assembly $ 94,950 $ 316,500 Total Plant $ 886,200 $ 633,eee Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows: Direct materials Direct labor Manufacturing overhead Fabricating $ 4,100 $ 5,00e Department Machining $4ee $700 Assembly $ 2.500 $2,300 Total Plant 57.000 $13,00 Required: 1. Using the company's plantwide approach: a. Compute the plantwide predetermined rate for the current year b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: a. Compute the predetermined overhead rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor and applied overhead). a What was the company's bid price on the Koopers job using a plantwide predetermined overhead rate? b What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Answer 1

Required 1A :
Predetermined overhead rate = Total estimated manufacturing overhead / Total estimated direct labor = 886200 / 633000	140%	of direct labor cost

Required 1B :
Manufacturing overhead cost applied = Actual total direct labor cost * Predetermined overhead rate = 13000 * 140%	18200

Required 2A :
Predetermined overhead rate ( Estimated Manufacturing overhead / Estimated Direct labor )
Fabricating department ( 369250 / 211000 )	175%	of direct labor cost
Machining department ( 422000 / 105500 )	400%	of direct labor cost
Assembly department ( 94950 / 316500 )	30%	of direct labor cost

Required 2B:
Manufacturing overhead cost applied = ( 5000 * 175% ) + ( 700 * 400% ) + ( 7300 * 30% )	13740

Required 4A :
	Koopers Job
Direct materials	7000
Direct labor	13000
Manufacturing overhead applied	18200
Total manufacturing cost	38200
Company's bid price ( @ 150% of total manufacturing cost )	57300

Required 4B :
	Koopers Job
Direct materials	7000
Direct labor	13000
Manufacturing overhead applied	13740
Total manufacturing cost	33740
Company's bid price ( @ 150% of total manufacturing cost )	50610