m 5.29 Plantwide overhead Rate versus Departmental Rates, Effects C on Pricing Cherise Ortega, marketing manager for Romer puzzled by the outcome of two recent bids. The company's was to bid l 50 percent of the full One (abeled Job 7-28) had been turned down by a prospective customer, who had indicated that the proposed price was S3 per unit higher than the winning bid. A second job Job 97-35) had been accepted by a customer, who was amazed that Romer could offer such favorable terms. This customer revealed that Romer's price was $43 per unit lower than the next lowest bid of cost Cherise has been informed the company was more than competitive in terms pro- control. Accordingly, that assignment rate she suspect that the problem was related to cost overhead Upon investigating, to uses a the year using budget Cherise was told that the company based on direct labor hours. The rate is computed at the beginning of budgeted data are given below. Department B Department A S2,500.000 S2,000,000 $500,000 Overhead 250.000 Direct labor hours 140.000 120.000 Machine hours Cherise also discovered that the overhead costs in Department B were higher than those in Department A because B has more equipment, higher maintenance, higher power consumption. higher depreciation, and higher setup costs. In addition to the general procedures overhead costs, Cherise was supplied with the following specific manufacturing data on Jobs 97-28 and 97-35: Job 97-28 Department A Department B Total 1,000 Direct labor hours Machine hours $100,000 $20,000 $120,000 Prime costs 14.400 14,400 14.400 Units produced Job 97-35 Department A Department B Direct labor hours Machine hours $10,000 Prime costs $40,000 Units produced (continued)