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 happened?" Prime Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labour cost. The following estimates were made at the beginning of the year: Department Direct labour Manufacturing overhead Cutting $ 306,000 $ 550,800 Machining $ 204,000 $ 816,000 Assembly $ 408,000 $ 102,000 Total Plant $ 918,000 $1,468,800 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 Direct material Direct labour Manufacturing overhead Cutting $ 15,200 $ 8,500 Machining $ 1,300 $ 2,500 Assembly Total Plant $ 6,400 $ 22,900 $ 15,400 $ 26,400 The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

Answer 1

1)
a)	Total Manufacturing OH			$ 1,468,800.00
	Total Direct Labor			$    918,000.00
	Predetermined OH rate			160%

b)	Hastings Job
	Direct Labor		$ 26,400.00
	Rate		160%
	OH applied		$ 42,240.00

2)				Manu. OH	Direct Labor	Rate
a)	Cutting Department			$ 550,800.00	$ 306,000.00	180%
	Machining Department			$ 816,000.00	$ 204,000.00	400%
	Assembly Department			$ 102,000.00	$ 408,000.00	25%

b)	Hastings Job
			Direct Labor	Rate	Applied OH
	Cutting Department		$   8,500.00	180%	$ 15,300.00
	Machining Department		$   2,500.00	400%	$ 10,000.00
	Assembly Department		$ 15,400.00	25%	$   3,850.00
					$ 29,150.00

4)
a)	Direct Material		$   22,900.00
	Direct Labor		$   26,400.00
	Applied OH		$   42,240.00
	Total Manu. Cost		$   91,540.00
	Bid Price	($ 91540 x 150%)	$ 137,310.00

b)
		Material	Labor	OH	Total
Cutting Department		$ 15,200.00	$   8,500.00	$         15,300.00	$   39,000.00
Machining Department		$   1,300.00	$   2,500.00	$         10,000.00	$   13,800.00
Assembly Department		$   6,400.00	$ 15,400.00	$           3,850.00	$   25,650.00
					$   78,450.00
			Bid Price	($ 78450 x 150%)	$ 117,675.00

5)
a)	Actual OH		$ 1,521,400.00
	Applied OH		$ 1,424,640.00
	(890400 x 160%)
	Underapplied OH		$      96,760.00

				Actual	Applied			Remark
b)	Cutting Department			$    574,000.00	$    590,400.00	($ 328000 x 180%)		Overapplied
	Machining Department			$    853,700.00	$    864,000.00	($ 216000 x 400%)		Overapplied
	Assembly Department			$      93,700.00	$      86,600.00	($ 346400 x 25%)		Underapplied
				$ 1,521,400.00	$ 1,541,000.00			Overapplied