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Landen Corporation uses a job order costing system. At the beginning of the year, the company made the following estimates 140,000 70,000 Direct labor hours
Landen Corporation uses a job order costing system. At the beginning of the year, the company made the following estimates 140,000 70,000 Direct labor hours required to support estimated production Machine hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor hour Variable manufacturing overhead cost per machine hour S784.000 $2.00 $4.00 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials $175 Direct labor cost $225 Direct labor hours 15 Machine hours 5 Required: 1. Assume that Landen has historically used a plantwide prodetermined overhead rate with direct labor hours as the allocation base. Under this approach a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? 2. Assume that Landen's controller believes that machine-hours is a better allocation base than direct labor hours. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 5507 3. Assume that Landen's controller is right about machine-hours being a more accurate overhead cost allocation base than direct labor hours. If the company continues to use direct labor hours as its only overhead cost allocation base what implications does this have for pricing jobs such as Job 550? Page 86
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