Question

"Blast it!" said 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 Department Fabricating Machining $ 376,250 $ 430,000 $ 215,000 $ 107,500 Assembly $ 96,750 $ 322,500 Total Plant $ 903,000 $ 645,000 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: Direct materials Direct labor Manufacturing overhead Fabricating $4,500 $5,800 Department Machining $ 500 $ 800 2 $2,900 $ 7,700 Total Plant $ 7,900 $14,300

Answer 1

1a) Plantwide overhead rate = 903000/645000 = 140% of labor cost

1b) Amount of overhead applied

	Fabricating	Machining	Assembly	Total
Manufacturing overhead applied	5800*1.4 = 8120	800*1.4 = 1120	7700*1.4 = 10780	20020

2a) Departmental overhead rate

Fabricating = 376250/215000 = 175% of labor cost

Machining = 430000/107500 = 400% of labor cost

Assembly = 96750/322500 = 30% of labor cost

2b) Overhead applied

	Fabricating	Machining	Assembly	Total
Manufacturing overhead applied	5800*1.75 = 10150	800*4 = 3200	7700*30% = 2310	15660

3a) Bid price = 7900+14300+20020*1.5 = 63330

3b) Bid price = 7900+14300+15660*1.5 = 56790