Question

High-End Lifts uses a volume-based, plant-wide approach to allocating overhead. They use direct-labor hours as the cost driver for determining the budgeted rate. You will need to derive the predetermined overhead rate for them. First few images are information for the actual problems. Please help!!

Challenge 2: Job-Order Costing for Customized Work Based on your advice, High-End Lifts has moved forward and set up the production process to build all of its residential elevators in- house. In the past, High-End Lifts utilized the cost estimates provided by the production company as the basis for quoting prices to its residential customers and did not bear the risk of cost overruns or manufacturing delays. Now that they are manufacturing products, they need a more sophisticated system for estimating costs, bidding on jobs, and tracking actuals against budgeted costs for planning and control purposes. They've asked for your help in setting up a system to quote and track the cost of custom jobs that are received for custom projects. You've recommended the use of a job order costing system since each job is budgeted and track based on customized speci cifications. Suggested Preparation: Use the Challenge 2 Workbook (found in "Resources" to complete the definitions related to the job ordering costing. Watch the videos to gain a stronger understanding of the concepts. Task 1: Calculate a predetermined overhead application rate using budgeted direct-labor hours as the cost driver. High-End Lifts uses a volume-based, plant-wide approach to allocating overhead. They use direct-labor hours as the cost driver for determining the budgeted rate Task 2: High-End Lifts received a request for proposal (RFP #240A) from Top Quality Builders, Inc. to manufacturer 6 custom-sized elevators for a small condominium project in Lake Bonaventure, NY for delivery on 10-1-18 (installation is not required). High-End Lifts has the in-house capacity to complete the job without incurring additional overhead costs. Required: 1) Determine the price and bid the job as specified in the RFP #240A. The RFP has specified that the bid include the cost of delivering the units to the construction site. High-End Lifts, Inc. has estimated that the delivery expense for the six elevators including insurance while in transit, is $1,500. This amount will be figured into the total cost of the bid, after accounting for the mark-up on cost. High-End Lifts, Inc. is aware that one of its competitiors is also bidding on the job. To compete, High-End Lifts wants to price the job at 40% gross margin rather than their standard 50% on the regular product line-up. Standard limited warranty on all High-End elevators is 5 years, parts and labor related to all power and hydraulic lift components. These elevators are slightly larger than the residential elevators they normally build and based on their estimates, these units will require 10% more in direct materials and 15% more in direct labor hours than their standard elevators. THe standard costs on the regular elevators are $55,000 for direct materials and 568,750 for direct labor which is based on an average of 400 hours per elevaton For the new units, manufacturing overhead will be budgeted using the pre-determined overhead rate calcualted in Task #1. For pricing the job, High-End Lifts will use the pre-determined overhead rate x the budgeted direct labor hours for the job 2) They've asked you to help write a proposal to bid on the job. Draft a proposal letter to Mike Bower at Top Quality Builders, Inc., 100 West 1st Street, Oswego, NY. In the letter, write a brief summary of the company, High-End Lifts, Inc., what you want to help the prospect accomplish, a timeline for getting the work done, pricing, warranty information and contact information. High-End Lifts, Inc. is located at 1001 James Street, Syracuse, NY 13111, the CEOs name is Skylar Cab, and the business cell number is 315-555-1234

Answer 1

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	Task 1: Predetermined MOH Rate:
	Total Budgeted MOH	$            373,450
	Total Budgeted DL Hours	11,000
	Predetermined MOH Rate	$                33.95
	Task 2: Proposal
	Direct Material	$              60,500
	Direct Labor	$              79,063
	Manufacturing Overhead Applied	$              15,617	460*33.95
	Total Cost per unit	$            155,180
	Total cost for Six Units	$            931,080	60%
	Price: Mark up 40%	$         1,551,800
	Freight and Insurance	$                1,500
	Total Bid	$         1,553,300
	Task 3: Actual
Date	Requisition No	Q	Unit Price	Cost
7/16/2018	101	3	$              61,000	$     183,000
8/20/2018	120	3	$              61,000	$     183,000
Total				$     366,000
Date	Requisition No	Q	Unit Price	Cost
7/20/2018	J3	265	$              171.88	$        45,548
7/27/2018	J4	265	$              171.88	$        45,548
8/3/2018	A1	265	$              171.88	$        45,548
8/10/2018	A2	265	$              171.88	$        45,548
8/17/2018	A3	265	$              171.88	$        45,548
8/24/2018	A4	265	$              171.88	$        45,548
8/31/2018	A5	265	$              171.88	$        45,548
9/7/18	S1	265	$              171.88	$        45,548
9/14/18	S2	265	$              171.88	$        45,548
9/28/18	S3	265	$              171.88	$        45,548
Total		2,650		$     455,482	Round Off
Date	Activity Base	Quantity	Application Rate	Cost
7/31/2018	DLH	530	$                33.95	$        17,994
8/31/2018	DLH	1,325	$                33.95	$        44,984
9/30/2018	DLH	795	$                33.95	$        26,990
Total		$                2,650		$        89,968
	Cost Summary:
	Direct Material	$            366,000
	Direct Labor	$            455,482
	Manufacturing Overhead Applied	$              89,968
	Total Cost	$            911,450
	Unit Cost (911450/6)	$            151,908
	Shipping Summary:
Date	Unit Shipped	Units Remaining	Cost Balance
10/1/2018
	Profitability Summary:
Date	Units		Per Unit	Total Bid
10/1/2018	6	Actual Price	$            225,000	$ 1,350,000
	6	Cost	$            151,908	$     911,450
		Gross Profit	$              73,092	$     438,551
		Gross Margin	32.49%	32.49%
Task 4: Job A1
		Budgeted	Actual	Variance
	Sales Price	$            258,633	$            225,000	$      -33,633
	Direct Material	$              60,500	$              61,000	$             500
	Direct Labor	$              79,063	$              75,914	$        -3,149
	Manufacturing Overhead Applied	$              15,617	$              14,995	$            -622
	Total Product Cost	$            155,180	$            151,908	$        -3,272
	Gross Profit	$            103,453	$              73,092	$      -30,362
	Gross Margin %	40.00%	32.49%	-7.5%