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 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: 7.22 points eBook Manufacturing overhead Direct labor Department Fabricating Machining $ 378,000 $ 432,000 $ 216,000 $ 108,000 Assembly Total Plant $ 97,200 $ 907, 200 $ 324,000 $ 648,000 Print References 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 $4,600 $6,000 2 Department Machining $ 200 $ 500 ? Assembly $3,000 $ 7,800 2 Total Plant $ 7,800 $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. 2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: a. Compute the predetermined overhead rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). a. What was the company's bid price on the Koopers iob usina a plantwide predetermined overhead rate?

Answer 1

Predetermined Overhead Rate = Estimated overheads/estimated direct labor cost	= 907200/648000 = 140.00%
Applied on Koopers Job	= 14300*140% = $20,020
	Fabricating	Machining	Assembly
Manufacturing Overhead	378,000	432,000	97,200
Direct Labor	216,000	108,000	324,000
Predetermined Rate	175%	400%	30%
b. Applied to Koopers Job	= 6000*175% + 500*400% + 7800*30% = $14,840
	Plantwide Rate	Departmental Rates
Direct Material	7,800	7,800
Direct Labor	14,300	14,300
Overheads	20,020	14,840
Total cost	42,120	36,940
Bid Price	63,180	55,410