Ian Black law and Gwen Benson are sales representatives for EMI, which installs and maintains music systems in office buildings, elevators, and other public areas. Sales representatives receive a base salary and a bonus of 10% of the actual gross margins on the orders they sell.

The direct manufacturing labor straight-time rate is $20 per hour, and the overtime rate is 50% higher. In costing each order, indirect manufacturing labor costs are assigned at a rate of 200% of direct manufacturing labor cost (excluding overtime premium). If overtime labor is used, whenever possible, it is charged to the rush order that caused the overtime. If overtime is caused by overall heavy production volume, not any particular rush order, it is allocated equally to all orders being worked on.

During January and February 2006, Black law and Benson sold and delivered one system each to Westec and Pinnacle, respectively. Each order required 2,000 direct labor hours, for a total of 4,000 labor hours. Of these hours, 2,000 hours were overtime hours. The following Excel spreadsheet summarizes the revenues and the costs other than overtime costs for each customer under different assumptions about which customer caused the rush order.

If you want to use Excel to solve this problem, go to the Excel Lab at www.prenhall.com/horngren/ cost12e and download the template for Problem 2-35.
Required
1. Calculate the gross margin on each order if only Westec was a rush order.
2. Calculate the gross margin on each order if only Pinnacle was a rush order.
3. Calculate the gross margin on each order if neither of the two orders were rush orders.

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9 (in $000s) 10 Customer 11 Sales Representative 12 Revenues 13 Cost of goods sold 4 Det Materials 15 Direct manufacturing labor 4 6 Indreot manufacturinglabor 80,000 7 Overtime cost Vestee eaused rush order Pinnacle caused rush order Neither caused rush order Pinnacle Vestee L Blacklaw Vestee Vesteo Pinnacle G. Benson G.Benson L Blaeklay G. Benson 420,000 460,000 420,000 $ 460,000 420,000 460,000 230,000 40,000 280,000 40,000 0,000 200.000 40000 0,000 230,000 40.000 80,000 260000 40.000 230,000 80,000 Total oost of goods sold 19 Gross Margi 20 Bonus eaned by salesperson 370,000 ,000