Dickson Company has two production departments, Milling and Assembly. The company uses a job$-$order costing system and computes a predetermined overhead rate in each production department. The predetermined overhead rate in the Milling Department is based on machine$-$hours and in the Assembly Department it is based on direct labor$-$hours. The company uses cost$-$plus pricing to establish selling prices for its products. Cost$-$plus pricing is a pricing method in which a predetermined markup is applied to a cost base to determine the target selling price. In this instance, Dickson Company uses a markup percentage of $75\%$ of total manufacturing cost to establish selling prices for all of its jobs. At the beginning of the year, the company made the following estimates:

During the current month the company started and completed Job $407.$ It wants to use its predetermined departmental overhead rates and the information pertaining to Job $407$ that is shown below to establish a selling price for this job:

You should proceed to the requirements below only after completing the first worksheet $($already completed by the instructor!$).$ Please watch the video lecture where I showed how to do the problem step by step using Excel. You will find the Excel template in Module $3$ on Canvas.

Required:

$1.$ Check your worksheet by changing the total fixed manufacturing overhead cost for the Milling Department in the Data area to $$300,000,$ keeping all of the other data the same as in the original example. If your worksheet is operating properly, the total cost of Job $407$ should now be $$2,350.$ If you do not get this answer, find the errors in your worksheet and correct them. How much is the selling price of Job $407?$ Did it change? Why or why not?

$2.$ Change the total fixed manufacturing overhead cost for the Milling Department in the Data area back to $$390,000,$ keeping all of the other data the same as in the original example. Determine the selling price for a new job, Job $408,$ with the following characteristics. You need not bother changing the job number from $407$ to $408$ in the worksheet.

$3.$ What happens to the selling price for Job $408$ if the total number of machine$-$hours in the Assembly Department increases from $3,000$ machine$-$hours to $6,000$ machine$-$hours? Does it increase, decrease, or stay the same as in part $2$ above? Why?

$4.$ Restore the total number of machine$-$hours in the Assembly Department to $3,000$ machine$-$hours. What happens to the selling price for Job $408$ if the total number of direct labor$-$hours in the Assembly Department decreases from $80,000$ direct labor$-$hours to $50,000$ direct labor$-$hours? Does it increase, decrease, or stay the same as in part $2$ above? Why?

Part $2$: "The Baker's Dilemma"

Scenario: You are the owner of "Delightful Dough," a popular bakery known for its customized cakes. Your bakery operates on a job$-$order costing system. Your challenge is to determine the cost and selling price of a special cake order for a big event.

Tasks:

Step $1$: Calculate the estimated total manufacturing overhead cost for both the Baking and Decorating departments.

Step $2$: Calculate the predetermined overhead rate for each department.

Step $3$: Determine the amount of overhead applied from both departments for this special cake order.

Step $4$: Calculate the total job cost for this special cake order.

Step $5$: Calculate the selling price for the cake by adding a $150\%$ markup.

Creative Twist:

Describe the most extravagant cake you can imagine for the event.

Explain how each step affects the final cost and selling price of this dream cake.

Reflect on how understanding these costs helps in making budgeting decisions for your bakery.

This assignment helps you to see the practical application of job$-$order costing in a fun, relatable scenario, emphasizing the importance of accurate costing in pricing and budgeting.