the gilster company, a machine tooling firm, has several plants,one plant, located in St falls, minnesota, uses a job order costingsystem for its batch production processes. The st. falls plant hastwo departments through which most jobs pass. plantwide overhead,which includes the plant managers salary, accounting personnal,cafeteria, and human services, is budgeted at $ 200,000. during thepast year, actual plantwide overhead was 190,000. Each departmentsoverhead consists primarily of depreciation and othermachine-related expenses. Selected budgeted and actual data fromthe st. falls plant for the past year are as follows
Budgeted department overhead
(excludes plant wideoverhead)...............................DepartmentA....100,000.......Department B.....500,000
Direct laborhours.........................................................50,000......................................10,000
Machinehours...............................................................10,000......................................50,000
Actual activity
Direct laborhours.........................................................51,000.......................................9.000
Machinehours...............................................................10,500........................................52,000
For the coming year, the accountants at st. falls are in theprocess of helping the sales force create bids for several jobs.Projected data pertaining to job no. 110 are as follows
Directmaterials.......................................................20,000
Direct labor cost:
Department A.( 2,000HR).....................................30,000
department B ( 500hr)............................................ 6,000
Machine hours projected:
Department A........................................................... 100
DepartmentB............................................................1,200
Unitsproduced..........................................................10,000
Instructions round overhead rate and unit costs to 2 decimalplaces and round other cost calculations to the nearest dollar.
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A) Assume the st. falls plant uses a single plantwide overheadrate to assign all over head( plantwide and department) costs tojobs. use expected direct labor hours to compute the overhead rate.find the overhead rate and determine the projected amount of totalmanufacturing costs per unit in job no. 110.
B) recalculate the projected manufacturing costs for job no. 110using three separate rates: one rate for plantwide overhead and twoseparate department overhead rates, all based on machine-hours.
C) The sales policy at st. falls dictates that job bids becalculated by adding 30 percent to total manaufacturing costs. whatwould be the bid for job no. 110 using 1) the overhead rate frompart A and 2) the overhead rate from part B? explain why the bidsdiffer. which of the over head allocation methods would yourecommend and why?
D) using allocation rates in part B, compare the under-or overapplied overhead for the st. falls plant for the year. explain theimpact on net income of assigning the under- overapplied overheadto cost of goods sold rather than prorating the amount betweeninventories and cost of goods sold.
E) A st. falls subcontractor has offered to produce the partsfor job 110. for a price of $ 8 per unit. Assume the st. fallssales force has already committed to the bid price based on thecalculations in part B. should st. falls buy the 8 per unit partfrom the subcontractor or continue to make the parts for job no.110 itself.
F) would your response to part e change if the st. falls plantcould use the facilities necessary to produce parts for job no. 110for another job that could earn incremental profit of $ 15,000
G) if the subcontractor mentioned in part e is located inmexico, what additional international environmental issues, otherthan price, will gilster and st. falls management need toevaluate.
