Question

Don't tell me we've lost another bid!" exclaimed Janice Hudson, president of Prime Products Inc. "I'm afraid so," replied Doug Martin, the operations vice-president. One of our competitors underbid us by about $11,000 on the Hastings job." "1 just can't figure it out," said Hudson. "lt seems we're either too high to get the job or too low to make any money on half the jobs we bid. What's happened? Prime Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labour cost. The following estimates were made at the beginning of the year Direct labour Manufacturing overhead Cutting Machining Assembly Total Plant $307,500 $205,000 $410,000 $ 922,500 $553,500 $820,000 $102,500 $1,476,000 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows: Department CuttingMachining Assembly Total Plant 6,600 $24,000 $16,000$27,700 $16,000 $1,400 Direct material Direct labour Manufacturing overhead 9,000 $2,700 The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming the 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 Hastings job. nufacturing overhead cost

Answer 1

1. Assuming the use of a plantwide rate:
	a. Calculate the MOH rate for the current year
		Predetermined MOH Rate = Estimated TMOH $/ Estimated total amount of the allocation base
		Predetermined MOH Rate = $1,440,000 / $900,000 =			$1476000/$922500		$1.60	160%
					.
	b. Determine the amount of MOH $ that would have been applied to the Hastings job.
		Applied MOH = MOH Rate X Actual use of the allocation based used to the determine rate								1. Assuming the use of a plantwide rate: a. Calculate the MOH rate for the current year Predetermined MOH Rate·E inated TMOH Si Estimated total amount ofthe allocation base Predetermined MOH Rate $$1476000uS92250e $1.60 180% b. Determine the amount of MOH 3 that would have been applied to the Hastings job Applied MOH-MOH Rst). Actual use of the alocaton besed Led Io the determie rle Applied MCH- $1.8 827700 144 320 2. Suppose that instead of using a plamwide overhead rate, the company had use0 a separate predetermined overhead rate in each department. Under these conditions: a. Compute the MOH rate for each depanment for the current year. Predetermined MCH Rate Es.imated TMOH S Estimated tocal amount of the allocation base Cutli Assembly Total Plant Manufachuring overhead Diroct labor cost MOH Rate per DL b. Determine the amount of MOH cost that would have been applied to tho Hastings job. Assembly Toial Flant Dirnct ma.onate Direct labor Manufacauring overhead 58 500 $1,700 13,000 521,200 S3 250 $21.750 $6.800 3. Question is not available 4. Assuma that it is customary in the industry to bid jobs at 150% or total manutactang cost (direct materals, direct bbor, and applied MCH Whst was the compaty's bid price on the Hastings jab? What would the bid price have heen if departmerlal MOH ratee had been used to apply MOH costs? Bid Based On Pantwich MCH Rate Dopartmant Assombly Toial Flant Direct ma.erials ,000 Manutaonrngovorhend (160%) Tolal Manufacturing Cosis Customary mwkup 50% 44 320 Ed prica on Hatings ob CTE x 1.bu) 5144 030 $144 0300 Bid Babed On Dopartmantal MCH Rato Dirnct m.ona Dirccl labor Manufacouring overhead Tolal Manufacluing Cosls Customary markup 50% 1,400 2,700 16,000 27,700 ed prioa on Hattngs job(TM x 1.50) Diterence in Bid price if departmental HOH rates are used . At the end of the year, the company assembled the fellawing sctual cost data relating to all jobs worked on during the year Actual manufacturing costs Department Asscmbly Total Plant Direct materials Direct labor Manufacturing overhead Total Manufacturing Costs 330,000 217,500 348000 当500 AMOH Rate Compute the underapplicd or overapplied tor the yesr (al assuming that a plantwide avenead rate is used Department Assembly Total Plant Actual MOH Incurred Applied MOH: 160%) Underapplied Overhead 348 000 58 800 (b) assuming that departmental overhead rates are used Department Cutti Assembly Total Plant Actual MOH Incurred Applied MOH Overapplied Overhead 87 000 Chec Check Check
		Applied MOH = $1.60 X $21,200 =		$1.6*$27700		$44,320
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 MOH rate for each department for the current year.
		Predetermined MOH Rate = Estimated TMOH $/ Estimated total amount of the allocation base
						Department
						Cutting	Machining	Assembly	Total Plant
		Manufacturing overhead				$5,53,500	$8,20,000	$1,02,500	$14,76,000
		Direct labor cost				$3,07,500	$2,05,000	$4,10,000	$9,22,500
		MOH Rate per DL $				1.80	4.00	0.25	1.60
		MOH Rate as a % of DL $				180%	400%	25%	160%
	b. Determine the amount of MOH cost that would have been applied to the Hastings job.
						Department
						Cutting	Machining	Assembly	Total Plant
		Direct materials				$12,000	$900	$5,600	$18,500
		Direct labor				$6,500	$1,700	$13,000	$21,200
		Manufacturing overhead				$11,700	$6,800	$3,250	$21,750
3. Question is not available
4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing
	cost (direct materials, direct labor, and applied MOH). What was the company's bid
	price on the Hastings job? What would the bid price have been if departmental MOH
	rates had been used to apply MOH costs?
		Bid Based On Plantwide MOH Rate				Department
						Cutting	Machining	Assembly	Total Plant
		Direct materials				$16,000	$1,400	$6,600	$24,000
		Direct labor				9,000	2,700	16,000	27,700
		Manufacturing overhead (160%)				14,400	4,320	25,600	44,320
		Total Manufacturing Costs				$39,400	$8,420	$48,200	$96,020
		Customary markup 50%							48,010
			Bid price on Hastings job (TMC X 1.50)						$1,44,030	$1,44,030.0
		Bid Based On Departmental MOH Rate				Department
						Cutting	Machining	Assembly	Total Plant
		Direct materials				$16,000	$1,400	$6,600	$24,000
		Direct labor				9,000	2,700	16,000	27,700
		Manufacturing overhead				16,200	10,800	4,000	31,000
		Total Manufacturing Costs				$41,200	$14,900	$26,600	$82,700
		Customary markup 50%							41,350
			Bid price on Hastings job (TMC X 1.50)						$1,24,050
		Difference in Bid price if departmental MOH rates are used							$19,980
5. At the end of the year, the company assembled the following actual cost data relating
	to all jobs worked on during the year:
		Actual manufacturing costs				Department
						Cutting	Machining	Assembly	Total Plant
		Direct materials				$7,82,500	$92,500	$4,20,000	$12,95,000
		Direct labor				3,30,000	2,17,500	3,48,000	8,95,500
		Manufacturing overhead				5,77,500	8,59,600	94,200	15,31,300		1.7099944
		Total Manufacturing Costs				$16,90,000	$11,69,600	$8,62,200	$37,21,800		AMOH Rate
	Compute the underapplied or overapplied for the year
		(a) assuming that a plantwide overhead rate is used
						Department
						Cutting	Machining	Assembly	Total Plant
			Actual MOH Incurred			$5,77,500	$8,59,600	$94,200	$15,31,300
			Applied MOH (160%)			5,28,000	3,48,000	5,56,800	14,32,800
			Underapplied Overhead			$49,500	$5,11,600	($4,62,600)	$98,500	Check	$98,500
		(b) assuming that departmental overhead rates are used
						Department
						Cutting	Machining	Assembly	Total Plant
			Actual MOH Incurred			$5,77,500	$8,59,600	$94,200	$15,31,300
			Applied MOH			5,94,000	8,70,000	87,000	15,51,000
			Overapplied Overhead			($16,500)	($10,400)	$7,200	($19,700)
						Check	Check	Check	Check
						($16,500)	($10,400)	$7,200	($19,700)