Question

) Poseidon Company produces customized sailboats. The company uses a job order costing system. Its plant has three production departments: cutting, machining, and assembly. The estimated manufacturing overhead cost and direct labor cost for each department for 2019 follow: Manufacturing Overhead cost Direct labor cost Cutting $600,000 $300,000 Machining $800,000 $200,000 Assembly $100,000 $500,000 In May 2019, the company received an invitation from Duluth Sailing Company to bid on an order of five luxury sailboats that must be delivered by the end of September 2019. This Duluth Job would require direct manufacturing costs in the three departments as follows: Cutting $12.000 $ 7.000 Machining $ 800 Direct material cost Direct labor cost Assembly $ 4,600 $15,000 $2,000 Required: a. Assume that a single, plantwide predetermined manufacturing cost driver rate based on direct labor cost is used. Determine the manufacturing cost driver rate and manufacturing overhead costs applied to the Duluth Job. b. As an alternative assume that separate, departmental predetermined manufacturing cost driver rates based on direct labor cost are used in each department. Determine the departmental manufacturing cost driver rates and manufacturing overhead costs applied to the Duluth job. c. Assume that Poseidon has a policy to add a 60% markup to estimated job costs to arrive at the bid price. Determine the bid price for the Duluth job using: 1. a plantwide manufacturing overhead cost driver rate; and 2. departmental manufacturing overhead cost driver rates. d. Review the bid prices computed in (c). Why do the two bids differ? c. What are the possible consequences of overbidding a job? Underbidding a job?

Answer 1

Answer with working is given below

a) plantwide predetermined manufacturing overhead rate Manufacturing overhead $1,500,000 150% Direct Labor cost $1,000,000 Manufacturing overhead applied to Duluth Job Direct Labor cost $24,000 Manufacturing overhead applied $36,000|(150% of Direct Labor cost) b) Departmental predetermined manufacturing overhead rate Cutting Manufacturing overhead $600,000 Direct Labor cost $300,000 200% Machining $800,000 $200,000 Assembly $100,000 20% $500,000 400% Direct Labor cost Manufacturing OH % Manufacturing OH applied Cutting $7,000 200% $14,000 Machining Assembly $2,000 $15,000 400% 20% $8,000 $3,000 | c) $12,000 $800 $4,600 $17,400 1 Bid price-plantwide rate Direct Material Cutting Machining Assembly Total Direct Material Direct Labor Cutting Machining Assembly Total Direct Labor Manufacturing Overhead applied Total manufacturing Cost Add: Mark up 60% Bid price for Duluth job $7,000 $2,000 $15,000 $24,000 $36,000 $77,400 $46,440 $123,840 2 $12,000 $800 $4,600 $17,400 Bid price - Departmental rate Direct Material Cutting Machining Assembly Total Direct Material Direct Labor Cutting Machining Assembly Total Direct Labor Manufacturing Overhead applied Cutting Machining Assembly $7,000 $2,000 $15,000 $24,000 $14,000 $8,000 $3,000 Total manufacturing Cost Add: Mark up 60% Bid price for Duluth job $25,000 $66,400 $39,840 $106,240 d Bid price-plantwide rate Bid price -Departmental rate $123,840 $106,240 The 2 bids differ due to the overhead rates charged. In method one the overhead is charged on plantwide rate and hence there is single overhead rate In method two the overhead is charged on departmental rate and hence there are three overhead rates e Overbidding a job The price may not be competitive due to higher pricing and hence chances of losing the bid Underbidding a job The price may be lower and hence margin may be insufficient and hence there may be loss for the job