case 4

"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $9,900 on the Hastings job." "I just cant figure it out," said Kovallas. "It seems were either too high to get the job or too low to make any money on half the jobs we bid anymore. Whats happened?"

Lenko Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year:

Cutting $ 304,000 $524,000 Department Machining $ 208,000 $ 818,730 Assembly $ 381,000 $ 95,000 Total Plant $ 893,000 $1,437,730 Direct labor Manufacturing overhead Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows Cutting $11,900 $ 6,600 Department Machining $900 $ 1,700 Assembly $ 5,700 $13,000 Total Plant $ 18,500 $ 21,300 Direct materials Direct labor Manufacturing overhead