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Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price
Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts. Manufacturing overhead for year 2 is estimated to be $21 million. Other budgeted data for year 2 include: Machine-hours (thousands) Direct labor cost ($000) Client 1 3,500 $ 3,000 Client 2 3,500 $ 12,000 Required: a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. (Round your answer to 2 decimal places.) Application rate per machine hour b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead. Application rate % of direct labor cost
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