The Gilster Company, a machine tooling firm, has several plants. One plant, located in St. Falls, Minnesota, uses a job order costing system for its batch production processes. The St. Falls plant has two departments through which most jobs pass. Plantwide overhead, which includes the plant managers salary, accounting personnel, cafeteria, and human resources, is budgeted at $200,000. During the past year, actual plantwide overhead was $190,000. Each departments overhead consists primarily of depreciation and other machine-related expenses. Selected budgeted and actual data from the St. Falls plant for the past year are as follow

Department A			Department B
Budgeted department overhead
(excludes plantwide overhead)	$	100,000		$	500,000
Actual department overhead		110,000			520,000
Expected activity:
Direct labor hours		50,000			10,000
Machine-hours		10,000			50,000
Actual activity:
Direct labor hours		51,000			9,000
Machine-hours		10,500			52,000

For the coming year, the accountants at St. Falls are in the process of helping the sales force create bids for several jobs. Projected data pertaining to job no. 110 are as follows:

Direct materials	$	20,000
Direct labor cost:
Department A (2,000 hr)		30,000
Department B (500 hr)		6,000
Machine-hours projected:
Department A		100
Department B		1,200
Units produced		10,000

Instructions

(Round overhead rates and unit costs to 2 decimal places and round other cost calculations to the nearest dollar.)

Based on your previous findings in Formative Assessment 1 answer the following;

d. Using the allocation rates in part b ($3.33 per MH & $10.00, $10.00 for Department A and B OH rate), compute the under- or overapplied overhead for the St. Falls plant for the year. Explain the impact on net income of assigning the under- or overapplied overhead to cost of goods sold rather than prorating the amount between inventories and cost of goods sold.

e. A St. Falls subcontractor has offered to produce the parts for job no. 110 for a price of $8 per unit. Assume the St. Falls sales force has already committed to the bid price based on the calculations in part b. Should St. Falls buy the $8 per unit part from the subcontractor or continue to make the parts for job no. 110 itself?

Part B

Direct materials	$20,000
Direct labour
Department A	$30,000
Department B	$6000
Overheads applied	$33,325
Total cost	$89,325
Add 30% to total cost	$26,798
Bid price	$116,123
Total units	10,000
Bid price per unit	$11.61

Direct materials	$20,000
Direct labour
Department A	$30,000
Department B	$6000
Overheads applied
Plantwide	$4329
Department A	$1000
Department B	$12,000
Total cost	$73,329
Add 30% to total cost	$21,999
Bid price	$95,328
Total units	10,000
Bid price per unit	$9.53

f. Would your response to part e change if the St. Falls plant could use the facilities necessary to produce parts for job no. 110 for another job that could earn an incremental profit of $15,000?