The Gilster Company, a machine tooling firm, has several plants. One plant, located in St$.$ Cloud, Minnesota, uses a job order costing system for its batch production processes. The St$.$ Cloud plant has two departments through which most jobs pass. Plant$-$wide overhead, which includes the plant manager$$s salary, accounting personnel, cafeteria, and human resources, is budgeted at $$250,000.$ During the past year, actual plantwide overhead was $$240,000.$ Each department$$s overhead consists primarily of depreciation and other machine$-$related expenses. Selected budgeted and actual data from the St$.$ Cloud plant for the past year are as follows.

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

Instructions

Assume the St$.$ Cloud plant uses a single plantwide overhead rate to assign all overhead $($plantwide and department$)$ costs to jobs. Use expected total direct labor hours to compute the overhead rate. What is the expected cost per unit produced for job no$.110?$

Recalculate the projected manufacturing costs for job no$.110$ using three separate rates: one rate for plantwide overhead and two separate department overhead rates, all based on machine$-$hours.

The sales policy at the St$.$ Cloud plant dictates that job bids be calculated by adding $40$ percent to total manufacturing costs. What would be the bid for job no$.110$ using $(1)$ the overhead rate from part a and $(2)$ the overhead rate from part b$?$ Explain why the bids differ. Which of the overhead allocation methods would you recommend and why?

page $963$Using the allocation rates in part b$,$ compute the under$-$ or overapplied overhead for the St$.$ Cloud 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.

A St$.$ Cloud subcontractor has offered to produce the parts for job no$.110$ for a price of $$12$ per unit. Assume the St$.$ Cloud sales force has already committed to the bid price based on the calculations in part b$.$ Should the St$.$ Cloud plant buy the $$12$ per unit part from the subcontractor or continue to make the parts for job no$.110$ itself?

Would your response to part e change if the St$.$ Cloud plant could use the facilities necessary to produce parts for job no$.110$ for another job that could earn an incremental profit of $$20,000?$

If the subcontractor mentioned in part e is located in Mexico, what additional international environmental issues, other than price, will management at the St$.$ Cloud plant need to evaluate?

If Gilster Company management decides to undertake a target costing approach to pricing its jobs, what types of changes will it need to make for such an approach to be successful?