Question

"Blast it" said David Wilson, president of Teledex Company. We've just lost the bid on the Koopers job by $2,000. 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 $ 364,000 $ 416,000 $ 200,000 $ 104,000 Assembly $ 93,600 $ 312,000 Total Plant $ 873,600 $ 624,000 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 $3,800 $4,400 Department Machining $ 400 $ 700 Assembly $ 2,200 $7,000 Total Plant $ 6,400 $12,100 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 job using a plantwide predetermined overhead rate? b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost? Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2A Required 2B Required 4A Required 4B Compute the plantwide predetermined rate for the current year. Predetermined overhead rate % of direct labor cost

Answer 1

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Answers are highlighted in yellow: Solution: 1) a) Plant wide overhead rate = Total Plant wide Estimated overhead cost / Total Plant wide Base Manufacturing overhead Direct labor Predetermined OH rate Total Plant $ 873600 $ 624000 $ 1.40 each dollar DL Manufacturing overhead applied (12100*1.40) = $ 16,940 a) Departmental overhead rate = Total Departmenal Estimated overhead cost / Total Departmental Base Manufacturing overhead Direct labor Predetermined OH rate Fabricating $ 364000 $ 208000 1.75 Department Machining $ 416000 $ 104000 4.00 Assembly $ 93600 $ 312000 0.30 4.14 Particulars Manufacturing overhead - Fabricating Manufacturing overhead - Machining Manufacturing overhead - Assembly Manufacturing Overhead applied (4400*1.75) (700*4) (7000*0.30) $ $ $ $ Amount 7,700 2,800 2,100 12,600

Particulars Direct Material Direct labor Manufacturing overhead (12100*1.40) Total manufacturing cost Company's bid price on job using plantwide rate (35440*150%) $ $ $ $ $ Amount 6,400 12,100 16,940 35,440 53,160 Particulars Direct Material Direct labor Manufacturing overhead - Fabricating (4400*1.75) Manufacturing overhead - Machining (700*4) Manufacturing overhead - Assembly (7000*0.30) Total manufacturing cost Company's bid price on job using departmental rate (31100*150%) $ $ $ $ $ $ Amount 6,400 12,100 7,700 2,800 2,100 31,100 46,650