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 operates a job order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year. Department Direct labor Manufacturing overhead Fabricating $ 202,000 $ 353,500 Machining $ 101,000 $ 404,000 Assembly $ 303,000 $ 90,900 Total Plant S 606,000 $ 848.400 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 Direct materials Direct labor Manufacturing overhead Fabricating Machining Assembly Total Plant $ 3,200 $ 200 $ 1,600 $ 5,000 $ 3,200 $ 500 $ 6,400 $ 10,100 ? 2 ? ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming use of a plantwide overhead rate: a. Compute the rate for the current year. Predetermined overhead rate % of direct labor cost b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. Manufacturing overhead cost

Answer 1

Requirement 1a:

Plantwide Predetermined overhead rate = Total Manufacturing overheads / Total Direct labor cost * 100

Plantwide Predetermined overhead rate = $848,400 / $606,000 * 100 = 140% of direct labor cost.

Requirement 1b:

Manufacturing overhead applied

Manufacturing overhead applied = Total direct labor cost * Plantwide predetermined overhead rate

Manufacturing overhead applied = $10,100 * 140% of direct labor cost = $14,140.

Requirement 2a:

Department predetermined overhead rate = Total departmental overhead cost / Department direct labor * 100

Department predetermined overhead rate

Department	Predetermined overhead rate
Fabricating Department	$353,500 / $202,000 * 100 = 175%
Machining Department	$404,000 / $101,000 * 100 = 400%
Assembly Department	$90,900 / $303,000 * 100 = 30%

Requirement 2b:

Manufacturing overhead applied

Manufacturing overhead applied = ($3,200 * 175%) + ($500 * 400%) + ($6,400 * 30%) = $5,600 + $2,000 + $1,920 = $9,520

Requirement 4a:

Bid price if a plantwide overhead rate is used

Particulars	$
Direct Materials	5,000
Direct Labor	10,100
Manufacturing Overheads	14,140
Total Manufacturing Cost	29,240

Bid price = $29,240 * 150% = $43,860

Requirement 4b:

Bid price if a departmental overhead rate is used

Particulars	$
Direct Materials	5,000
Direct Labor	10,100
Manufacturing Overheads	9,520
Total Manufacturing Cost	24,620

Bid price = $24,620 * 150% = $36,930

Requirement 5a:

Under or overapplied overhead using plantwide overhead rate

Applied Manufacturing Overhead cost = $586,000 * 140% of direct labor cost = $820,400

Actual Manufacturing overhead cost = $869,100

Under applied overhead cost = $820,400 - $869,100 = $48,700

Requirement 5b:

Under or overapplied overhead using departmental overhead rate

Fabricating	($212,000 * 175%) - $362,000 Overapplied	($9,000)
Machining	($110,000 * 400%) - $422,000 Overapplied	($18,000)
Assembly	($264,000 * 30%) - $85,100 Underapplied	$5,900
Total Plant	Overapplied	($21,100)

All the best...