Question

Building Your Skills Analytical Thinking 2-22 Plantwide versus Departmental Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3, LO2-4) "Blast iti" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $3,000. It seems we're elther 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 labo Fabricating Machining $ 371,000 $ 424,000 212,000 $ 106,000 Assembly Total Plant $ 95,400 $ 890,400 $ 318,000 $ 636,000 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: Fabricating $4,200 $5,200 Machining 500 Direct materials Direct labor Manufacturing overhead Assembly $2,600 $7,400 Total Plant $ 7,300 $13,400 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? Complete this question by entering your answers in the tabs below.

Answer 1

Predetermined Overhead Rate = Estimated overheads/estimated direct labor cost	140.00%
Applied on Koopers Job	18,760
	Fabricating	Machining	Assembly
Manufacturing Overhead	371,000	424,000	95,400
Direct Labor	212,000	106,000	318,000
Predetermined Rate	175%	400%	30%
b. Applied to Koopers Job	14,520
	Plantwide Rate	Departmental Rates
Direct Material	7,300	7,300
Direct Labor	13,400	13,400
Overheads	18,760	14,520
Total cost	39,460	35,220
Bid Price	59,190	52,830

C D 1 Predetermined Overhead Rate = Estimated overheads/estimated direct labor cost 2 Applied on Koopers Job 3 =890400/636000 =13400*B1 Machining 5 Manufacturing Overhead 6 Direct Labor 7 Predetermined Rate Fabricating 371000 212000 =B5/B6 424000 106000 =C5/C6 Assembly 95400 318000 =D5/D6 =B7*5200+C7*800+D7*7400 9 b. Applied to Koopers Job 10 11 12 Direct Material 13 Direct Labor 14 Overheads 15 Total cost 16 Bid Price Plantwide Rate 7300 13400 =B2 =SUM(B12:B14) =B15*150% Departmental Rates 7300 13400 =B9 =SUM(C12:C14) =C15*150%