Question 3

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: 140,000 Direct labor-hours required to support estimated production Machine-hours required to support estimated production Fixed manufacturing overhead cost 70,000 $784,000 $2.00 Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour $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 15 Direct labor-hours Machine-hours 5 Required: 1. Assume that Landen has historically used a plantwide predetermined 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 550? 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