Question

"Don't tell me we've lost another bid!" exclaimed Janice Hudson, president of Prime Products Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $11,000 on the * Hastings job." "I just can't figure it out," said Hudson. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid. What's k happened?" Prime Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on e the basis of direct labour cost. The following estimates were made at the beginning of the year: Department Cutting Machining Assembly Total Plant Direct labour $310,500 $207,000 $414,000 $ 931,500 turing $558,900 $828,000 $103,500 $1,490,400 overhead Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows: Department Total Cutting Machining Assembly + Plant Direct $17,600 $1,600 $ 7,000 $26,200 material Direct labour $10,000 $3,100 $17,200 $30,300 Manufacturing ? ? ? ? overhead The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming the use of a plantwide overhead rate: a. Compute the rate for the current year. Predetermined overhead rate b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. Manufacturing overhead cost

Answer 1

Part 1 –a

Predetermined MOH rate = estimated total MOH / estimated total amount of the allocation base = 1490400/931500 = 160% of direct labor cost

Part 1-b

Applied MOH = Predetermined MOH rate * actual use of the allocation base to determine rate = 160%*30300 = $48480

Part 2-a

Predetermined MOH rate = estimated total MOH / estimated total amount of the allocation base

MOH rate for Cutting	558900/310500	180% of direct labor cost
MOH rate for Machining	828000/207000	400% of direct labor cost
MOH rate for Assembly	103500/414000	25% of direct labor cost

Part 2-b

Applied MOH = Predetermined MOH rate * actual use of the allocation base to determine rate

Applied MOH Cutting	10000*180%	$18000
Applied MOH Machining	3100*400%	$12400
Applied MOH Assembly	17200*25%	$4300
Total MOH applied		$34700

                                               

Part 4-a

Direct materials	26200
Direct labor	30300
Manufacturing overhead	48480
Total manufacturing costs	$104980
Markup	150%
Bid price	$157470

Part 4-b

Direct materials	26200
Direct labor	30300
Manufacturing overhead	34700
Total manufacturing costs	$91200
Markup	150%
Bid price	$136800

Part 5-a

Applied overhead = 905700*160% = $1449120

Underapplied overhead = actual overhead – applied overhead = 1551000-1449120 = $101880

Part 5-b

Applied overhead = (334000*180%)+(220500*400%)+(351200*25%) = $1571000

Overapplied overhead = applied overhead – actual overhead = 1571000-1551000 = $20000