Question
Case [LO2-1, LO2-2, LO2-3, LO2-7] Blast it! said David Wilson, president of Teledex Company. Weve just lost the bid on the Koopers job by $2,000.
Case [LO2-1, LO2-2, LO2-3, LO2-7]
Blast it! said David Wilson, president of Teledex Company. Weve just lost the bid on the Koopers job by $2,000. 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 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: |
Department | ||||||||
Fabricating | Machining | Assembly | Total Plant | |||||
Direct labor | $ | 211,000 | $ | 105,500 | $ | 316,500 | $ | 633,000 |
Manufacturing overhead | $ | 369,250 | $ | 422,000 | $ | 94,950 | $ | 886,200 |
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 | $ | 4,100 | $ | 400 | $ | 2,500 | $ | 7,000 |
Direct labor | $ | 5,000 | $ | 700 | $ | 7,300 | $ | 13,000 |
Manufacturing overhead | ? | ? | ? | ? | ||||
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. |
Required: | |
1. | Assuming use of a plantwide overhead rate: |
a. | Compute the 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 overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions: |
a. | Compute the 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 company's bid price on the Koopers job if a plantwide overhead rate had been used to apply overhead cost? |
b. | What would the bid price have been if departmental overhead rates had been used to apply overhead cost? |
5. | At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year. |
Department | ||||||||
Cutting | Machining | Assembly | Total plant | |||||
Direct materials | $ | 201,000 | $ | 17,100 | $ | 125,000 | $ | 343,100 |
Direct labor | 221,000 | 119,000 | 273,000 | 613,000 | ||||
Manufacturing overhead | $ | 379,000 | $ | 443,000 | $ | 86,000 | $ | 908,000 |
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. (Enter overapplied overhead costs as negative amounts and underapplied overhead costs as positive amounts.) |
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