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: Department Fabricating Machining $ 374,500 $ 428,000 $ 214,000 $ 107,000 Manufacturing overhead Direct labor Assembly $ 96,300 $ 321,000 Total Plant $ 898,800 $ 642,000 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 Machining $ 400 $ 700 Fabricating $4,400 $5,600 Direct materials Direct labor Manufacturing overhead Assembly $ 2,800 $ 7,600 ? Total Plant $ 7,600 $ 13,900 ? 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?

Answer 1

Required 1A :
Predetermined overhead rate = Total estimated manufacturing overhead / Total estimated direct labor = 898800 / 642000	140%	of direct labor cost

Required 1B :
Manufacturing overhead cost applied = Actual total direct labor cost * Predetermined overhead rate = 13900 * 140%	19460

Required 2A :
Predetermined overhead rate ( Estimated Manufacturing overhead / Estimated Direct labor )
Fabricating department ( 374500 / 214000 )	175%	of direct labor cost
Machining department ( 428000 / 107000 )	400%	of direct labor cost
Assembly department ( 96300 / 321000 )	30%	of direct labor cost

Required 2B:
Manufacturing overhead cost applied = ( 5600 * 175% ) + ( 700 * 400% ) + ( 7600 * 30% )	14880

Required 4A :
	Koopers Job
Direct materials	7600
Direct labor	13900
Manufacturing overhead applied	19460
Total manufacturing cost	40960
Company's bid price ( @ 150% of total manufacturing cost )	61440

Required 4B :
	Koopers Job
Direct materials	7600
Direct labor	13900
Manufacturing overhead applied	14880
Total manufacturing cost	36380
Company's bid price ( @ 150% of total manufacturing cost )	54570