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Blast it! said Amy Wilson, president of a custom furniture design company, Wilson Woodworking. We've just lost the bid on the Kooper's cabinets by
"Blast it!" said Amy Wilson, president of a custom furniture design company, Wilson Woodworking. "We've just lost the bid on the Kooper's cabinets by $2,000. It seems we're either too high to get the job or too low to make any money on the jobs we bid. I just don't understand what we are doing wrong!" Wilson Woodworking manufactures cabinets 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 Manufacturing overhead Direct labor Total Plant $ 350,000 $ 400,000 $ 90,000 $840,000 $ 200,000 $ 100,000 $ 300,000 $ 600,000 Assembly Jobs require varying amounts of work in the three departments. The Kooper's cabinet job, for example, would have required manufacturing costs in the three departments as follows: Direct materials Direct labor Manufacturing overhead Fabricating $3,000 $2,800 ? Department Machining $ 200 Assembly $1,400 Total Plant $4,600 $ 500 ? $6,200 ? $9,500 ? Another job for the Smith family would have required different manufacturing costs in the three departments as follows: Department Fabricating Machining Assembly $2,000 $ 500 $1,200 $1,050 $6500 ? ? $2,000 ? Direct materials Direct labor Manufacturing overhead Required: 1. Using the company's plantwide approach: Total Plant $3,700 $9,550 ? a. Compute the plantwide predetermined rate for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Kooper job. c. Determine the amount of manufacturing overhead cost that would have been applied to the Smith job.
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