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." 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: Department Fabricating Machining Assembly by Total Plant $ 372,750 $426,000 $ 95,850 $894,600 $ 213,000 $106,500 $319,500 $639,000 ng overhead Direct labor 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: Direct materials Direct labor Manufacturing overhead Department Fabricating Machining Assembly Total Plant $4,300 $300 $2,700 $ 7,300 $5,400 $600 $7,500 $13,500 ? ? 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. 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). a.What was the company's bid price on the Koopers job using a plantwide predetermined overhead rate? b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost? Complete this question by entering your answers in the tabs below. Required Required Required Required Required Required 1A 1B 2A 2B 4A 4B Compute the plantwide predetermined rate for the current year. Predetermined % of direct labor overhead rate cost Required 1A Required 1B >

Answer 1

Solution 1a:

Overhead rate = 894600/639000 = 140%

Solution 1b:

Total manufacturing Overhead applied = 13500*140% = 18900

Solution 2a and 2b:

Computation of overhead rate for Each department
Particulars	Fabricating	Machining	Assembly
Overhead cost of deparment	$3,72,750	$4,26,000	$95,850
/Total direct labor Cost	$2,13,000	$1,06,500	$3,19,500
Overhead rate of department	175%	400%	30%
Computation of Manufacturing Overhead applied to Koopers Job
Particulars	Fabricating	Machining	Assembly
Direct Labor	$5,400	$600	$7,500
Overhead rate of department	175%	400%	30%
Manufacturing overhead applied	$9,450	$2,400	$2,250
Total Overhead applied			$14,100

Solution 4a and 4b:

Computation of Bid price on Koopers Job (Using Plantwide Overhead rate)
Particulars	Amount
Total Direct material	$7,300
Total Direct Labor	$13,500
Total manufacturing Overhead applied	$18,900
Total manufacturing cost	$39,700
Bid Price ($39700*150%)	$59,550
Computation of Bid price on Koopers Job (Using Departmental Overhead rate)
Particulars	Amount
Total Direct material	$7,300
Total Direct Labor	$13,500
Total manufacturing Overhead applied	$14,100
Total manufacturing cost	$34,900
Bid Price ($34900*150%)	$52,350