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 Assembly Total Plant
Direct labor $215,000 $107,500 $322,500 $645,000
Manufacturing
overhead $376,250 $430,000 $96,750 $903,000
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
Fabricating Machining Assembly Total Plant
Direct materials $4,500 $500 $2,900 $7,900
Direct labor $5,800 $800 $7,700 $14,300
Manufacturing overhead ? ? ? ?
The company uses plant-wide overhead rate to apply manufacturing overhead cost to jobs.
Required:
1. Assuming use of a plant-wide 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 Koopers job.
2. Suppose that instead of using a plant-wide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:
A. Compute the 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.
3. 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 if a plant-wide overhead rate had been used to apply overhead cost?
B. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
4. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year.
Department
Fabricating Machining Assemble Total Plant
Direct materials $205,000 $17,500 $129,000 $351,500
Direct labor 225,000 123,000 277,000 625,000
Manufacturing
overhead $387,000 $463,000 $86,400 $936,400

Answer 1

Answer:

1. Assuming use of a plant-wide overhead rate:

A. Compute the rate for the current year.

• = $903,000 / $645,000 = $1.40 per $ of direct labor cost

B. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

• = $14,300 x 1.4 = $20,020

2. Suppose that instead of using a plant-wide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:

A. Compute the rate for each department for the current year.

• fabricating = $376,250 / $215,000 = $1.75 per $ of direct labor cost
• machining = $430,000 / $107,500 = $4 per $ of direct labor cost
• assembly = $96,750 / $322,500 = $0.30 per $ of direct labor cost

B. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

• fabricating = $5,800 x 1.75 = $10,150
• machining = $800 x $4 = $3,200
• assembly = $7,700 x $0.30 = $2,310
• total = $15,660

3. 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 if a plant-wide overhead rate had been used to apply overhead cost?

• total production costs = $7,900 + $14,300 + $20,020 = $42,220
• bid price = $42,220 x 1.5 = $63,330

B. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?

• total production costs = $7,900 + $14,300 + $15,660 = $37,860
• bid price = $37,860 x 1.5 = $56,790

4. There are no requirements for question 4.

Explanation:

Department

                        Fabricating      Machining     Assembly       Total Plant

Direct labor       $215,000        $107,500     $322,500       $645,000

Man. overhead $376,250       $430,000       $96,750       $903,000

Koopers Job

                        Fabricating      Machining     Assembly       Total Plant

Direct materials $4,500             $500           $2,900           $7,900  

Direct labor        $5,800             $800           $7,700          $14,300