Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $3,000. It seems we're either too high to get the job or too low to make any money on half the jobs we bid." 40 points 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: eBook Print Department Fabricating Machining $ 360,500 $ 412,000 $ 206,000 $ 103,000 Manufacturing overhead Direct labor Assembly $ 92,700 $ 309,000 Total Plant $ 865,200 $ 618,000 References 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: Department Machining $ 300 $ 600 Fabricating $3,600 $ 4,000 Direct materials Direct labor Manufacturing overhead Assembly $2,000 $6,800 Total Plant $ 5,900 $11,400 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.

Answer 1

1
a.	Plant wide overhead rate=Estimated Manufacturing overhead/Estimated direct labor=865200/618000=1.4=140% of direct labor cost
b.	Amount of manufacturing overhead applied to Koopers job=Direct labor cost*140%=11400*140%=$ 15960
2
a.	Departmental overhead rate=Estimated Manufacturing overhead of the department/Estimated direct labor cost of the department
					Fabricating	Machining	Assembly
	Estimated manufacturing overhead (1)				360500	412000	92700
	Estimated direct labor cost			2	206000	103000	309000
	Departmental overhead rate			(1)/(2)	1.75	4.00	0.30
					175%	400%	30%
b.	Amount of manufacturing overhead applied to Koopers job=Direct labor cost of department*Departmental overhead rate
					Cutting	Machining	Assembly
	Direct labor cost			1	4000	600	6800
	Departmental overhead rate			2	175%	400%	30%
	Manufacturing overhead applied			(1*2)	7000	2400	2040
4
a.	Bid price:
					$
	Total direct material cost				5900
	Total direct labor cost				11400
	Manufacturing overhead applied (Refer 1-b.)				15960
	Total manufacturing cost				33260
	Bid price=150%*Total manufacturing cost=33260*150%=$ 49890
b.	Bid price:
					Cutting	Machining	Assembly	Total
	Direct material cost				3600	300	2000	5900
	Direct labor cost				4000	600	6800	11400
	Manufacturing overhead applied (Refer 2-b.)				7000	2400	2040	11440
	Total manufacturing cost							28740
	Bid price=150%*Total manufacturing cost=28740*150%=$ 43110