Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $4,000. 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 Fabricating $219,000 $ 383,250 Machining $ 109,500 $ 438,000 Assembly $ 328,500 $ 98,550 Direct labor Manufacturing overhead Total Plant $ 657,000 $ 919,800 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 Fabricating Machining Assembly Total Plant $ 4,900 $ 400 $ 3,300 $ 8,600 $ 6,600 $ 700 $ 8,100 $ 15,400 ? ? ? Direct materials Direct labor Manufacturing overhead . 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

Answer 1

find out the %age of Manufacturing Overhead on Direct Labour.

                                             Fabricating                    Machining                    Assembly                    Plant

Direct labor               219,000                      109,500                        328,500                      657,000

Manufacturing Overhead             383,250                        438,000                     98,550                        919,800

%                       383250*100/219000        438000*100/109500            98550*100/328500         919800/657000*100

%on Direct Labor                       175%                              400%                        30%                             140%

1. Plantwide overhead rate:

a) 140% on Direct Labor ( on plant basis)

b) find out job amount on Koopers job:

                                      Fabricating                  Machining                      Assembly                 Plant            

Direct Material       4900 400    3300    8600

Direct labor                          6600                        700                                8100                       15400

Manufacturing Overhead        140% on 6600        140% on 700           140% on 8100                140% on 15400

                                             9,240                            980                         11,340                      21,560       

Total Manufacturing              20,740                        2,080                            22,740                       45,560

Overhaed Cost

(total of alll expenses)                                                                                                                                    

2. Now if Individual rate of %afe on Direct labor is used then same find out %age and Total manufacturing Ovehead Cost:

as already individual process %age is calculated as above. in starting of the Question:

a) rates are on Direct Labor

fabricating Department                                      175%

machining Department                                       400%

Assembly Department                                       30%

b) manufacturing Overhead cost now by applying these rates:

                                     Fabricating                     Machining                     Assembly                 Plant              

Direct material                 4900                                400                              3300                          8600

Direct Labor                      6600                            700                               8100                         15400

Manufacturing Overhead     175% on 6600           400% on 700                30% on 8100              140% on 15400

                                          11550                        2800                             2430                              21560       

Manufacturing Overhead Cost    23,050                 3,900                              13,830                            45,560       

5. actaul data given find out Manufacturing Overhead cost:

                                     Cutting                          machining                 Assembly                      Plant              

Direc Material                  209000                       17900                        133000                            359900

Direct labor                       229000                      127000                        281000                           637000

Manufacturing Overhead      395000                     483000                       86800                               964800       

Total manufacturing Cost      833,000                     627,900                     500,800                           1,961,700    

Now if 140% on direct labor is used then expenses will be:

                                  Cutting                         Machining                  Assembly                      Plant

Direct Material              209000                          17900                       133000                          359900

Direct Labor                  229000                      127000                        281000                           637000

manufacturing Overhead    140% on 229000      140% on 127000        140% on 281000           140% on 637000

                                     320600                       177800                         393400                        891800          

Total manufacturing

Overhead Cost                   758,600                      322,700                       807400                         1,888,700

Overhead cost in plant 1,961,700(actual data)

if Plant wide rate used on all the activities 1,888,700

so cost incurred extra it means cost is underapplied.

with $1,888,700- 1,961,700= $73,000