Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $2,000. 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 Department Fabricating Machining $ 353,500 $ 404,000 $ 202,000 $ 101,000 Assembly $ 90,900 $ 303,000 Total Plant $ 848, 400 $ 606,000 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 $ 200 $500 Fabricating $3,200 $3,200 Direct materials Direct labor Manufacturing overhead Assembly $1,600 $6,400 Total Plant $5,000 $10,100 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?

Answer 1

Solution 1:

1a:
Predetermined overhead rate
Estimated Total Overhead	$8,48,400
/Total Direct labor Cost	$6,06,000
Predetermined overhead rate	140.00%
1b:
Manufacturing Overhead applied on Koopers Job
Total Direct labor cost on Koopers Job	$10,100
Predetermined overhead rate	140.00%
Total manufacturing Overhead applied	$14,140

Solution 2:

2a:
Teledex Company
Computation of overhead rate for Each department
Particulars	Fabricating	Machining	Assembly
Overhead cost of deparment	$3,53,500	$4,04,000	$90,900
/Total direct labor Cost	$2,02,000	$1,01,000	$3,03,000
Overhead rate of department	175%	400%	30%
2b:
Computation of Manufacturing Overhead applied to Koopers Job
Particulars	Fabricating	Machining	Assembly
Direct Labor	$3,200	$500	$6,400
Overhead rate of department	175%	400%	30%
Manufacturing overhead applied	$5,600	$2,000	$1,920
Total Overhead applied to Koopers Job			$9,520

Solution 3:

3a:
Computation of Bid price on Koopers Job (Using Plantwide Overhead rate)
Particulars	Amount
Total Direct material	$5,000
Total Direct Labor	$10,100
Total manufacturing Overhead applied	$14,140
Total manufacturing cost	$29,240
Bid Price ($29240*150%)	$43,860
3b:
Computation of Bid price on Koopers Job (Using Departmental Overhead rate)
Particulars	Amount
Total Direct material	$5,000
Total Direct Labor	$10,100
Total manufacturing Overhead applied	$9,520
Total manufacturing cost	$24,620
Bid Price ($24620*150%)	$36,930