Plantwide and Departmental Overhead Rates; Job Costs
Smithson Company uses a job-order costing system and has two manufacturing departments— Molding and Fabrication. The company provided the following estimates at the beginning of the year:
| Molding | Fabrication | Total |
Machine-hours | 20,000 | 30,000 | 50,000 |
Fixed manufacturing overhead costs | $800,000 | $300,000 | $1,100,000 |
Variable manufacturing overhead per machine-hour | $5.00 | $5.00 |
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During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-75 and Job C-100. It provided the following information related to those two jobs:
Job D-75: | Molding | Fabrication | Total |
Direct materials cost | $375,000 | $325,000 | $700,000 |
Direct labor cost | $200,000 | $160,000 | $360,000 |
Machine-hours | 15,000 | 5,000 | 20,000 |
Job C-100: | Molding | Fabrication | Total |
Direct materials cost | $300,000 | $250,000 | $550,000 |
Direct labor cost | $175,000 | $225,000 | $400,000 |
Machine-hours | 5,000 | 25,000 | 30,000 |
Smithson had no overapplied or underapplied manufacturing overhead during the year.
Required:
1. Assume Smithson uses a plantwide overhead rate based on machine-hours.
a. Compute the predetermined plantwide overhead rate.
b. Compute the total manufacturing costs assigned to Job D-75 and Job C-100.
c. If Smithson establishes bid prices that are 150% of total manufacturing costs, what; bid price would it have established for Job D-75 and Job C-100?
d. What is Smithson's cost of goods sold for the year?
2. Assume Smithson uses departmental overhead rates based on machine-hours.
a. Compute the predetermined departmental overhead rates.
b. Compute the total manufacturing costs assigned to Job D-75 and Job C-100.
c. If Smithson establishes bid prices that are 150% of total manufacturing costs, what bid price would it have established for Job D-75 and Job C-100?
d. What is Smithson's cost of goods sold for the year?
3. What managerial insights are revealed by the computations that you performed in this problem? (Hint: Do the cost of goods sold amounts that you computed in requirements 1 and 2 differ from one another? Do the bid prices that you computed in requirements 1 and 2 differ from one another? Why?)
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