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:

	Department
	Fabricating		Machining		Assembly		Total Plant
Manufacturing overhead	$	371,000	$	424,000	$	95,400	$	890,400
Direct labor	$	212,000	$	106,000	$	318,000	$	636,000

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:

	Department
	Fabricating			Machining			Assembly			Total Plant
Direct materials	$	4,200		$	500		$	2,600		$	7,300
Direct labor	$	5,200		$	800		$	7,400		$	13,400
Manufacturing overhead		?			?			?			?
Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Answer 1

Answer

• Bid Price would be $ 52,830
• Working for above answer

	Department
		Fabricating	Machining	Assembly	Total
A	Manufacturing overhead	$371,000	$424,000	$95,400	$890,400	$
B	Direct labor	$212,000	$106,000	$318,000	$636,000	$
C = (A/B) x 100	Departmental Predetermined overhead rates	175%	400%	30%
D	Direct materials	$4,200	$500	$2,600	$7,300
E	Direct labor	$5,200	$800	$7,400	$13,400
F = E x C	Manufacturing overhead applied	$9,100	$3,200	$2,220	$14,520
G = D+E+F	Total manufacturing cost	$18,500	$4,500	$12,220	$35,220
H = G x 150%	Bid Price	$27,750	$6,750	$18,330	$52,830	Answer