Question

"Don't tell me we've lost another bid exclaimed Sandy Kovallas, president of Lerko Products, Incm afraid so," replied Doug Martin, the operations vice president. One of our competitors undertid us by about 510,000 on the Hastings job." just can't figure it out," said Kovallas. "It seems were either too high to get the job or too low to make any money on at the jobs we bid anymore. What's happened Lerko Products manufactures speciated goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jos on the basis of direct labor cost. The wing somates were made at the beginning of the year Culing Department Machining Machining Assembly Manufacturing overhead $540,000 $300,000 $100.000 $ 900.000 1.410.000 Jobis require varying amounts of work in the three departments. The Hastings , for example, w a ve required manufacturing | | $12.000 50.500 Department | | 5 000 51700 | | 5600 5 13.000 | | | 1500 2.200 Manufacturing overhead The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs Required: 1. Assuming the use of a planta de overhead role a compute the rate for the current year of de labour cost

Answer 1

1-a) Predetermined overhead rate= Total manufacturing overhead/Total direct labor

= $1440000*100/900000= 160% of direct labor cost

b) Applied manufacturing costs= Actual total direct labor costs*Predetermined overhead rate

= $21200*160%= $33920

2-a) Cutting department= $540000*100/300000= 180%

Machining department= $800000*100/200000= 400%

Assembly department= $100000*100/400000= 25%

b)

Cutting department ($6500*180%)	$11700
Machining department ($1700*400%)	6800
Assembly department (13000*25%)	3250
Total manufacturing overhead cost applied	$21750

4-a)

Direct materials	$18500
Direct labor	21200
Manufacturing overhead applied	33920
Total manufacturing costs	$73620
Bid price of the jobs ($73620*1.50)	$110430

b)

Direct materials	$18500
Direct labor	21200
Manufacturing overhead applied	21750
Total manufacturing costs	$61450
Bid price of the jobs ($61450*1.50)	$92175

5-a) Manufacturing overhead applied= Actual total direct labor costs*Predetermined overhead rate

= $870000*160%= $1392000

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $1392000-1482000= $90000 underapplied

Underapplied overhead cost $90000

b) Cutting Department

Manufacturing overhead applied= $320000*180%= $576000

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $576000-560000= $16000 overapplied

Machining Department

Manufacturing overhead applied= $210000*400%= $840000

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $840000-830000= $10000 overapplied

Assembly Department

Manufacturing overhead applied= $340000*25%= $85000

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $85000-92000= $7000 underapplied

Cutting	Overapplied	Overhead cost	$16000
Machining	Overapplied	Overhead cost	$10000
Assembly	Underapplied	Overhead cost	$7000
Total plant	Overapplied	Overhead cost	$19000

Total plant overhead cost= Overapplied of Cutting+Overapplied of Machining-Underapplied of Assembly

= $16000+10000-7000= $19000 overapplied