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 $12,000 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 Cutting $ 318,000 $ 572,400 Machining $ 212,000 $ 848,000 Assembly $ 424,000 $ 106,000 Total Plant $ 954,000 $1,526,400 Direct labour Manufacturing 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 Cutting $ 21,600 $ 12,500 Machining $ 2,100 $ 4,100 Assembly Total Plant $ 8,000 $ 20,200 $ 31,700 $ 36,800 Direct material Direct labour 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

Answer 1

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Prime Products
Answer 1 a
Calculation of Plant wide OH Rate	Cutting	Machining	Assembly	Total	Note
Manufacturing overhead	572,400.00	848,000.00	106,000.00	1,526,400.00	A
Direct Labor	318,000.00	212,000.00	424,000.00	954,000.00	B
Predetermined OH Rate				1.60	C=A/B
Answer 1 b
Allocated OH for Hastings Job	Amount $
Direct Labor	36,800.00				D
Predetermined OH Rate	1.60				See C
Allocated OH	58,880.00				E=C*D
Answer 2 a
Calculation of Departmental OH Rate	Cutting	Machining	Assembly	Note
Manufacturing overhead	572,400.00	848,000.00	106,000.00	F
Direct Labor	318,000.00	212,000.00	424,000.00	G
Departmental OH Rate	1.80	4.00	0.25	H=F/G
Answer 2 b
Allocated OH for Hastings Job	Cutting	Machining	Assembly	Total
Direct Labor	12,500.00	4,100.00	20,200.00	36,800.00	I
Departmental OH Rate	1.80	4.00	0.25		See H
Allocated OH	22,500.00	16,400.00	5,050.00	43,950.00	J=H*I
Answer 4 a
Bid price under plant wide OH rate	Amount $
Direct Materials	31,700.00				K
Direct Labor	36,800.00				See I
Allocated OH	58,880.00				See E
Total manufacturing cost	127,380.00				L=K+E+I
Bid price	178,332.00				M= L*140%
Answer 4 b
Bid price under departmental OH rate	Amount $
Direct Materials	31,700.00				See K
Direct Labor	36,800.00				See I
Allocated OH	43,950.00				See J
Total manufacturing cost	112,450.00				N=K+I+J
Bid price	157,430.00				O=N*140%
Answer 5 a	Amount $
Actual Labor cost	931,200.00				P
Predetermined OH Rate	1.60				See C
Overhead applied	1,489,920.00				Q=P*C
Actual overhead	1,600,300.00				R
Under applied	110,380.00				S=R-Q
Answer 5 b
Overhead applied	Cutting	Machining	Assembly
Direct Labor	344,000.00	228,000.00	359,200.00		T
Departmental OH Rate	1.80	4.00	0.25		See H
Overhead applied	619,200.00	912,000.00	89,800.00		U=T*H
Remarks	Overhead applied	Actual Overhead	Difference	Remarks
Cutting	619,200.00	602,000.00	17,200.00	Over applied
Machining	912,000.00	901,000.00	11,000.00	Over applied
Assembly	89,800.00	97,200.00	(7,400.00)	Under applied