Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

Direct labor-hours required to support estimated production		145,000
Machine-hours required to support estimated production		72,500
Fixed manufacturing overhead cost	$	406,000
Variable manufacturing overhead cost per direct labor-hour	$	4.40
Variable manufacturing overhead cost per machine-hour	$	8.80

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Direct materials	$	183
Direct labor cost	$	295
Direct labor-hours		15
Machine-hours		5

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

Answer 1

a) Plantwide predetermine overhead rate = (406000/145000)+4.40 = 7.20 per labour hour

b) Total manufacturing cost of job 550

Direct material	183
Direct labour	295
Applied overhead (15*7.2)	108
Total manufacturing cost	586

c) Selling price of job 550 = 586+(586*200%) = $1758