âBlast it!â said David Wilson, president of Teledex Company.âWeâve just lost the bid on the Koopers job by $4,000. It seemsweâre either too high to get the job or too low to make any moneyon half the jobs we bid.â
Teledex Company manufactures products to customersâspecifications and operates a job order costing system.Manufacturing overhead cost is applied to jobs on the basis ofdirect labor cost. The following estimates were made at thebeginning of the year:
Department Fabricating Machining Assembly Total Plant Direct labor $ 210,000 $ 105,000 $ 315,000 $ 630,000 Manufacturingoverhead $ 367,500 $ 420,000 $ 94,500 $ 882,000
Jobs require varying amounts of work in the three departments.The Koopers job, for example,
would have required manufacturing costs in the three departments asfollows:
Department Fabricating Machining Assembly Total Plant Directmaterials $ 4,000 $ 300 $ 2,400 $ 6,700 Direct labor $ 4,800 $ 600 $ 7,200 $ 12,600 Manufacturingoverhead ? ? ? ?
The company uses a plantwideoverhead rate to apply manufacturing overhead cost to jobs.
Required: 1. Assuming use of a plantwideoverhead rate:
a. Compute the rate for the current year.
b. Determine the amount of manufacturing overhead cost that wouldhave been applied to
the Koopers job.
2. Suppose that instead of using a plantwide overhead rate, thecompany had used a separate predetermined overhead rate in eachdepartment. Under these conditions:
a. Compute the rate for eachdepartment for the current year.
b. Determine the amount of manufacturing overhead cost that wouldhave 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, andapplied overhead).
a. What was the company's bid price on the Koopers job if aplantwide overhead rate had been used to apply overhead cost?
b. What would the bid price have been if departmental overheadrates had been used to apply overhead cost?
5. At the end of the year, the company assembled the followingactual cost data relating to all jobs worked on during theyear.
Department
Fabricating Machining Assembly Total plant Directmaterials $ 200,000 $ 17,000 $ 124,000 $ 341,000 Direct labor 220,000 118,000 272,000 610,000 Manufacturingoverhead $ 377,000 $ 440,000 $ 85,900 $ 902,900
a. Compute the underapplied or overapplied overhead for the year,assuming that a plantwide overhead rate is used.
b. Compute the underapplied or overapplied overhead for the year,assuming that departmental overhead rates are used. (Enteroverapplied overhead costs as negative amounts and underappliedoverhead costs as positive amounts.)
âBlast it!â said David Wilson, president of Teledex Company.âWeâve just lost the bid on the Koopers job by $4,000. It seemsweâre either too high to get the job or too low to make any moneyon half the jobs we bid.â |
Teledex Company manufactures products to customersâspecifications and operates a job order costing system.Manufacturing overhead cost is applied to jobs on the basis ofdirect labor cost. The following estimates were made at thebeginning of the year: |
| Department | ||||||||
| Fabricating | Machining | Assembly | Total Plant | |||||
| Direct labor | $ | 210,000 | $ | 105,000 | $ | 315,000 | $ | 630,000 |
| Manufacturingoverhead | $ | 367,500 | $ | 420,000 | $ | 94,500 | $ | 882,000 |
Jobs require varying amounts of work in the three departments.The Koopers job, for example, |
| Department | ||||||||
| Fabricating | Machining | Assembly | Total Plant | |||||
| Directmaterials | $ | 4,000 | $ | 300 | $ | 2,400 | $ | 6,700 |
| Direct labor | $ | 4,800 | $ | 600 | $ | 7,200 | $ | 12,600 |
| Manufacturingoverhead | ? | ? | ? | ? | ||||
| The company uses a plantwideoverhead rate to apply manufacturing overhead cost to jobs. |
| Required: | |
| 1. | Assuming use of a plantwideoverhead rate: |
| a. | Compute the rate for the current year. |
| b. | Determine the amount of manufacturing overhead cost that wouldhave been applied to |
| 2. | Suppose that instead of using a plantwide overhead rate, thecompany had used a separate predetermined overhead rate in eachdepartment. Under these conditions: |
| a. | Compute the rate for eachdepartment for the current year. |
| b. | Determine the amount of manufacturing overhead cost that wouldhave been applied to |
| 4. | Assume that it is customary in the industry to bid jobs at 150%of total manufacturing cost (direct materials, direct labor, andapplied overhead). |
| a. | What was the company's bid price on the Koopers job if aplantwide overhead rate had been used to apply overhead cost? |
| b. | What would the bid price have been if departmental overheadrates had been used to apply overhead cost? |
| 5. | At the end of the year, the company assembled the followingactual cost data relating to all jobs worked on during theyear. |
Department | ||||||||
| Fabricating | Machining | Assembly | Total plant | |||||
| Directmaterials | $ | 200,000 | $ | 17,000 | $ | 124,000 | $ | 341,000 |
| Direct labor | 220,000 | 118,000 | 272,000 | 610,000 | ||||
| Manufacturingoverhead | $ | 377,000 | $ | 440,000 | $ | 85,900 | $ | 902,900 |
| a. | Compute the underapplied or overapplied overhead for the year,assuming that a plantwide overhead rate is used. |
| b. | Compute the underapplied or overapplied overhead for the year,assuming that departmental overhead rates are used. (Enteroverapplied overhead costs as negative amounts and underappliedoverhead costs as positive amounts.) |
