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 Machining Assembly Total Plant

Direct labor $ 210,000 $ 105,000 $ 315,000 $ 630,000

Manufacturing overhead $ 367,500 $ 420,000 $ 94,500 $ 882,000

  

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 $ 4,000 $ 300 $ 2,400 $ 6,700

Direct labor $ 4,800 $ 600 $ 7,200 $ 12,600

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.

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 overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:

a. Compute the 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 job if a plantwide overhead rate had been used to apply overhead cost?

b. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?

5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year.

Department

Cutting Machining Assembly Total plant

Direct materials $ 200,000 $ 17,000 $ 124,000 $ 341,000

Direct labor 220,000 118,000 272,000 610,000

Manufacturing overhead $ 377,000 $ 440,000 $ 85,900 $ 902,900

a. Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.

b. Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used. (Enter overapplied overhead costs as negative amounts and underapplied overhead costs as positive amounts.

	Fabricating Machining Assembly Total plant

  

  

Answer 1

1)

a) Plantwide Overhead Rate :-

= Total Manufacturing Overhead / Total Direct Labor cost

= $882000 / $630000

= 1.4 times

b) Manufacturing Overhead Applied :-

= Direct Labor Cost * Overhead Rate

= $12600 * 1.4

= $17640

2)

a)

Particulars	Fabricating	Machining	Assembly
Estimated Manufacturing Overhead Cost(A)	$367500	$420000	$94500
Estimated Direct Labor Cost(B)	$210000	$105000	$315000
Predetermined Overhead Rate(A/B)	1.75 times	4 times	0.3 times

b)

Particulars	Fabricating	Machining	Assembly
Direct Labor Cost (A)	$4800	$600	$7200
Predetermined Rate (B)	1.75 times	4 times	0.3 tmes
Manufacturing Overhead(A*B)	$8400	$2400	$2160

Total Manufacturing Overhead Applied = $8400 + $2400 + $2160 = $12960

4)

a) Total Manufacturing cost :- (Overhead Calculate by Plantwide Rate)

= Direct Materials + Direct Labor + Manufacturing Overhead

= $6700 + $12600 + $17640

= $36940

The Bid Price is at 150% of Manufacturing Cost :-

= $36940 * 150%

= $55410

b) Total Manufacturing cost :- (Overhead Calculate by Departmental Overhead Rate)

= Direct Materials + Direct Labor + Manufacturing Overhead

= $6700 + $12600 + $12960

= $32260

The Bid Price is at 150% of Manufacturing Cost :-

= $32260 * 150%

= $48390

5)

a) Calculate Under or Overapplied Overhead (By Plantwide overhead rate)

= Direct Labor * Overhead Rate

= $610000 * 1.4

= $854000

Overhead Applied = $902900

Underapplied Overhead = $854000 - $902900

= ($48900) underapplied

b)

Particulars	Cutting	Machining	Assembly
Applied Overhead Cost (Direct Labor * Overhead Rate)	$385000	$472000	$81600
Actual Overhead Cost	$377000	$440000	$85600
(Underapplied) / Overapplied	$8000	$32000	($4000)