Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

Direct labor-hours required to support estimated production		90,000
Machine-hours required to support estimated production		45,000
Fixed manufacturing overhead cost	$	252,000
Variable manufacturing overhead cost per direct labor-hour	$	2.40
Variable manufacturing overhead cost per machine-hour	$	4.80

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Direct materials	$	236
Direct labor cost	$	371
Direct labor-hours		15
Machine-hours		5

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

(Round your intermediate calculations to 2 decimal places. Round your Predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.)

Answer 1

Answer to Requirement 1:

Estimated manufacturing overhead = Estimated variable manufacturing overhead per labor hour * Estimated labor hours + Estimated fixed manufacturing overhead
Estimated manufacturing overhead = $2.40 * 90,000 + $252,000
Estimated manufacturing overhead = $468,000

Predetermined overhead rate = Total estimated manufacturing overhead / Total estimated labor hours
Predetermined overhead rate = $468,000 / 90,000
Predetermined overhead rate = $5.20

Manufacturing overhead applied = Predetermined overhead rate * Actual labor hours
Manufacturing overhead applied = $5.20 * 15
Manufacturing overhead applied = $78

Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead applied
Total manufacturing cost = $236 + $371 + $78
Total manufacturing cost = $685

Selling price = Manufacturing cost + Markup
Selling price = $685 + 200% * $685
Selling price = $2,055

Answer to Requirement 2:

Estimated manufacturing overhead = Estimated variable manufacturing overhead per machine hour * Estimated machine hours + Estimated fixed manufacturing overhead
Estimated manufacturing overhead = $4.80 * 45,000 + $252,000
Estimated manufacturing overhead = $468,000

Predetermined overhead rate = Total estimated manufacturing overhead / Total estimated machine hours
Predetermined overhead rate = $468,000 / 45,000
Predetermined overhead rate = $10.40

Manufacturing overhead applied = Predetermined overhead rate * Actual machine hours
Manufacturing overhead applied = $10.40 * 5
Manufacturing overhead applied = $52

Total manufacturing cost = Direct materials + Direct machine + Manufacturing overhead applied
Total manufacturing cost = $236 + $371 + $52
Total manufacturing cost = $659

Selling price = Manufacturing cost + Markup
Selling price = $659 + 200% * $659
Selling price = $1,977