Case 2-22 Plantwide versus Departmental Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3, LO2-4] Blast it! said David Wilson, president of Teledex Company. Weve just lost the bid on the Koopers job by $4,000. It seems were 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 Manufacturing overhead $ 357,000 $ 408,000 $ 91,800 $ 856,800 Direct labor $ 204,000 $ 102,000 $ 306,000 $ 612,000 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 $ 3,400 $ 300 $ 1,800 $ 5,500 Direct labor $ 3,600 $ 600 $ 6,600 $ 10,800 Manufacturing overhead ? ? ? ? Required: 1. Using the company's plantwide approach: 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 Koopers job. 2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: a.Compute the predetermined overhead 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. 4. 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 companys bid price on the Koopers job using a plantwide predetermined overhead rate? b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Using the company's plantwide approach, compute the plantwide predetermined rate for the current year.

Predetermined overhead rate

%

of direct labor cost

Using the company's plantwide approach, determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

	Manufacturing overhead cost applied

Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Compute the predetermined overhead rate for each department for the current year.

Predetermined Overhead Rate
Fabricating department		%	of direct labor cost
Machining department		%	of direct labor cost
Assembly department		%	of direct labor cost

Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

	Manufacturing overhead cost applied

Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What was the companys bid price on the Koopers job using a plantwide predetermined overhead rate?

	Company's bid price

Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

	Manufacturing overhead cost applied