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 Assembly Total Plant $ 376,250 $ 430,000 $ 96,750 $ 903,000 $ 215,000 $ 107,500 $ 322,500 $ 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 Assembly 52,900 $ 7,700 Total Plant $7.900 $14,300 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.

Answer 1

Answer :

1 (a) Predetermined overhead rate = $ 903000*100 / $ 645000

= 140 % of Direct Labor cost

1 (b) Manufacturing overhead applied to Koopers job

= $ 14300* 140 % = $ 20020

2 (a)

Prdetermined overhead rate for Fabricating Department = $ 376250*100 / $ 215000 = 175 % of Direct Labor cost

Prdetermined overhead rate for Machining  Department = $ 430000*100 / $ 107500 = 400 % of Direct Labor cost

Prdetermined overhead rate for Assembly Department = $ 96750*100/ $ 322500 = 30 %

2 (b) Amount of manufacturing overhead applied to Koopers job

	Fabricating	Machining	Assembly	Total
Labor cost	$ 5800	$ 800	$ 7700	$ 14300
Manufacturing overhead applied	$ 10150 ( $ 5800*175 %)	$ 3200 ( $ 800*400 %)	$ 2310 ( $ 7700*30% )	$ 15660

4 (a) Bid price if Plantwide predetermined overhead rate is used

Direct material	$ 7900
Direct labor	$ 14300
Manufacturing overhead Applied	$ 20020
Total cost (a)	$ 42220
Bid Price (a) *150 %	$ 63330

4 (b)

Direct material	$ 7900
Direct labor	$ 14300
Manufacturing overhead Applied	$ 15660
Total cost (a)	$ 37860
Bid Price (a) *150 %	$ 56790