Question

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3] 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 Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour 80,000 40,000 $ 240,000 $ 1.80 $ 3.60 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials Direct labor cost Direct labor-hours Machine-hours $ 207 $ 257 15 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

1
Direct labor hours:
a
Predetermined overhead rate	4.80	per DLH	=1.8+(240000/80000)
b
Direct materials	207
Direct labor cost	257
Manufacturing overhead applied	72	=15*4.8
Total manufacturing cost of Job 550	536
c
Total manufacturing cost of Job 550	536
Add: Markup @ 200%	1072
Selling price	1608
2
Machine hours:
a
Predetermined overhead rate	9.60	per MH	=3.6+(240000/40000)
b
Direct materials	207
Direct labor cost	257
Manufacturing overhead applied	48	=5*9.6
Total manufacturing cost of Job 550	512
c
Total manufacturing cost of Job 550	512
Add: Markup @ 200%	1024
Selling price	1536