Question

"Blast It!" sald 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 uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to Jobs. The following estimates were made at the beginning of the year: Manufacturing overhead Direct labor Fabricating $ 379,750 $ 217,000 Department Machining S 434,000 $ 108,500 Assembly $ 97,650 $ 325,500 Total Plant $ 911,400 $ 651,000 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 Machining S 300 $ 600 Fabricating $ 4,700 $ 6.200 Direct materials Direct labor Manufacturing overhead Assembly $ 3.100 $ 7,900 Total Plant $ 8,100 $14,700 Required: 1. Using the company's plantwide approach: a. Compute the plantwide predetermined rate for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 2. Suppose that Instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: a.Compute the predetermined overhead rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 4. Assume that it is customary in the Industry to bid Jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). a.What was the company's bid price on the Koopers Job using a plantwide predetermined overhead rate? b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost? Complete this question by entering your answers in the tabs below. Required 1A Required 18 Required 2A Required 2B Required 4A Required 48 Using the company's plantwide approach, compute the plant wide predetermined rate for the current year. Predetermined overhead rate % of direct labor cost < Required 1A Required 1B >

Answer 1

Solution 1:

1a:
Predetermined overhead rate
Estimated Total Overhead	$9,11,400
/Total Direct labor Cost	$6,51,000
Predetermined overhead rate	140.00%
1b:
Manufacturing Overhead applied on Koopers Job
Total Direct labor cost on Koopers Job	$14,700
Predetermined overhead rate	140.00%
Total manufacturing Overhead applied	$20,580

Solution 2:

2a:
Teledex Company
Computation of overhead rate for Each department
Particulars	Fabricating	Machining	Assembly
Overhead cost of deparment	$3,79,750	$4,34,000	$97,650
/Total direct labor Cost	$2,17,000	$1,08,500	$3,25,500
Overhead rate of department	175%	400%	30%
2b:
Computation of Manufacturing Overhead applied to Koopers Job
Particulars	Fabricating	Machining	Assembly
Direct Labor	$6,200	$600	$7,900
Overhead rate of department	175%	400%	30%
Manufacturing overhead applied	$10,850	$2,400	$2,370
Total Overhead applied to Koopers Job			$15,620

Solution 3:

3a:
Computation of Bid price on Koopers Job (Using Plantwide Overhead rate)
Particulars	Amount
Total Direct material	$8,100
Total Direct Labor	$14,700
Total manufacturing Overhead applied	$20,580
Total manufacturing cost	$43,380
Bid Price ($43380*150%)	$65,070

3b:
Computation of Bid price on Koopers Job (Using Departmental Overhead rate)
Particulars	Amount
Total Direct material	$8,100
Total Direct Labor	$14,700
Total manufacturing Overhead applied	$15,620
Total manufacturing cost	$38,420
Bid Price ($38420*150%)	$57,630