Question

Problem 2-16 (Static) Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3] Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour 140,000 70,000 $ 784,000 $ 2.00 $ 4.00 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials Direct labor cost Direct labor-hours Machine-hours $175 $225 15 5 Required: 1. Assume that Landen has historically used a plantwide predetermined overhead ratłe with direct labor-hours as the allocation base Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? 2. Assume that Landen's controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach: a. Compute the plantwide predetermined overhead rate, b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? (Round your intermediate calculations to 2 decimal places. Round your predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.)

Answer 1

Requirement 1:

a.

Fixed manufacturing overhead	$            784,000
Direct labor hours required to support estimated production	140000
Variable manufacturing overhead cost per direct labor hour	$                   2.00
Total direct labor [140000*2]	$            280,000
Estimated total manufacturing overhead [784000+280000]	$        1,064,000
Plantwide Predetermined overhead rate [1064000/140000]	$                   7.60	Per DLH

Plantwide Predetermined overhead rate = Estimated total manufacturing overhead/ Estimated direct labor hours

b.

Direct materials	$                    175
Direct labor	$                    225
Manufacturing overhead applied [15*7.60]	$                    114
Total manufacturing cost of Job 550	$                    514

c.

Total manufacturing cost	$                    514
Mark up [ 514*200%]	$                1,028
Selling price of Job 550	$                1,542

Requirement 2

a.

Fixed manufacturing overhead	$            784,000
Machine labor hours required to support estimated production	70000
Variable manufacturing overhead cost per direct labor hour	$                   4.00
Total Machine cost [70000*4]	$            280,000
Estimated total manufacturing overhead [784000+280000]	$        1,064,000
Plantwide Predetermined overhead rate [1064000/70000]	$                15.20	Per MH

b.

Direct materials	$                    175
Direct labor	$                    225
Manufacturing overhead applied [5*15.20]	$                      76
Total manufacturing cost of Job 550	$                    476

c.

Total manufacturing cost	$                    476
Mark up [ 476*200%]	$                    952
Selling price of Job 550	$                1,428