Case study #2 Written Report

Case 3-26 One Predetermined Overhead Rate vs Two Predetermined Overhead Rates: Pricing

First - answer the case study 3-26 in McGraw Hill Connect. Then, use the correct answers to write the case study report. The actual case study in McGraw Hill Connect is worth 10 points. I have given you unlimited opportunities to get the correct answers on the case study in Connect. The remainder of the 50 points comes from your report.

Answer each question as if you were the lead staff accountant for Teledex Company and are presenting to the CEO as indicated in the case study.

For each answer explain the terminology and concepts used. For example, in #1 rather than just give the predetermined overhead rate , explain the calculation - this is a professional report from a managerial accountant to the company president.

Use outside sources when necessary BUT MAKE SURE YOU CITE THEM!

When giving a recommendation, back it up with numbers. Make sure you address the original dilemma - lost bids.

This particular answer should be managerial accounting report to the company president that is no more than 2 pages in length.

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.

3. 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?

Explanation

Predetermined overhead rate = Estimated total manufacturing overhead cost Estimated total amount of the allocation base

Predetermined overhead rate = $865,200 $618,000 direct labor cost = 140% of direct labor cost

The manufacturing overhead cost applied to the Koopers job is computed as follows:

$11,400 140% = $15,960

	Fabricating Department	Machining Department	Assembly Department
Estimated manufacturing overhead cost (a)	$ 360,500	$ 412,000	$ 92,700
Estimated direct labor cost (b)	$ 206,000	$ 103,000	$ 309,000
Predetermined overhead rate (a) (b)	175%	400%	30%

Fabricating Department: $4,000 175%	$ 7,000
Machining Department: $600 400%	2,400
Assembly Department: $6,800 30%	2,040
Total applied overhead	$ 11,440

The company's bid was:

Direct materials	$ 5,900
Direct labor	11,400
Manufacturing overhead applied (see requirement 1b)	15,960
Total manufacturing cost	$ 33,260
Bidding rate	1.5
Total bid price	$ 49,890

If departmental overhead rates had been used, the bid would have been:

Direct materials	$ 5,900
Direct labor	11,400
Manufacturing overhead applied (see requirement 2b)	11,440
Total manufacturing cost	$ 28,740
Bidding rate	1.5
Total bid price	$ 43,110

Note that if departmental overhead rates had been used, Teledex Company would have been the low bidder on the Koopers job because the competitor underbid Teledex by only $3,000.