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 operates a job order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year: Department Direct labor Manufacturing overhead Fabricating $ 201,000 $ 351,750 Machining $100,500 $ 402,000 Assembly $ 301,500 $ 90,450 Total Plant $ 603,000 $ 844,200 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: Department Direct materials Direct labor Manufacturing overhead Fabricating Machining Assembly Total Plant $ 3,100 $ 300 $ 1,500 $ 4,900 $ 3,000 $ 600 $ 6,300 $ 9,900 ? ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming use of a plantwide overhead rate: a. Compute the rate for the current year. Predetermined overhead rate of direct labor cost

Answer 1

1a) Predetermine overhead rate = 844200/603000 = 140% of labor cost

1b) Manufacturing overhead applied = 9900*1.4 = 13860

2a) Predetermine overhead rate :

Fabricating department = 351750/201000 = 175% of labor cost

Machining department = 402000/100500 = 400% of labor cost

Assembly department = 90450/301500 = 30% of labor cost

2b) Applied overhead = (3000*1.75+600*4+6300*30%) = 9540