Comprehensive Problem 5

Instructions a - h

The Gilont Company; a muchine tooling firm, has several plants. Oot plast, located in St. Cloud. Minbesoes, uses a job order corting system for its batch production proctery The St. Cloud plant has two departmems through which nost jobs pass. Pant-Wide ovecheted which includes the plant manager's saluy, wccounting personnel, eafeteria, and bamian wesweth is budgeed at 5250000 . During the puat year, actual plantwide overticad was 5240,000 . Exy department's overtead convists primarily of depreciation and chier mackine-related expetive Selected budgeted and actual data from the St. Cloud plant for the past year are as follome. For the coming year, the acountants at the 5c. Cloud phant are in the process of belping the who force create bids for several jobs. Projected data pertaining only bo job bo. 110 are as filbows. Instructions a. Assume the St. Clost plant uses a sigcle platifide overticad rate to assign all oseteal (plantwide and depurtment) coras to jobs. Use expected total direct labor bours to compupots's overtiead rate. What is the experted cos per unit produced for job no, 1107 b. Recalculate the projected manufacturing costs for job no 110 using three separye pled ost mile for plantwide overhead and two sepanate department overicad rates, all base ot machischours.- c. The wales policy at the St. Clead plant dictales that job bids be calculated by adding 40 pertet to tecal manufacturing couss. What would be the bid for job to. 110 using (1) the overhe2d tss foen part a and (2) ibe overiead rate froms part b? Explais why the bids differ. Which olth overheod allocation methods woald yoa recommend and why? d. Using the allucation rates in purt b, compute the under-or everapplied enthead for the 5. Cloud piast for the year. Explaies the impact en net incoase of tasiening the under- or over. applied overhead to coet of goods sold rather than proeating the amoant between itwentoriet and cost of goods sold. c. A St. Clond subcontractor bas offered to peoduce the parts for job no, 110 foe a peice of $12 per uniti. Asqume the 51 . Cloud sales force has alseady commined on the bid price based on the calculaxions in part b. Should the 54 . Cloud plant buy the $12 per wit part fiven the sabcontracter or continue oo make the parts fec job no. 110 itself? f. Woald your respocye to part e change if the St. Clood plant could we the actitities neceesary to produce parts for job no. 110 for asolher job that could earn an incrematal peofit at 520 ,0097 3. If the subcontractor mestioned in part e is located in Mexico, what additional intertatienal environmental issues, other than peice, will mana gement an the St. Clood plant neced to ecatiute? h. If Cilister Company management decides to underate a target costing approach wa prising its jobs, what types of changes will it eced to make for rach an appeositi to be successiful