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 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. Cloud plant for the past year are as follows.

	Department A				Department B
Budgeted department overhead
(excludes plantwide overhead)	$	100,000			$	500,000
Actual department overhead		110,000				520,000
Expected total 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 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.

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

Required:

a-1. 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.

a-2. What is the expected cost per unit produced for job no. 110?

Assume the St. Cloud plant uses three separate overhead rates to assign overhead costs to jobs.

b-1. Find the plant wide overhead rate by using expected machine hours.

b-2. Find the department overhead rate using expected machine hours for Department A and Department B.

b-3. Calculate the projected manufacturing costs per unit for job 110 using the three separate rates computed in b-1 and b-2.

c-1. The sales policy at the St. Cloud plant dictates that job bids be calculated by adding 30 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part a?

c-2. The sales policy at the St. Cloud plant dictates that job bids be calculated by adding 30 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part b?

c-3. Which of the overhead allocation methods would you recommend?

d. Compute the under- or overapplied overhead for the St. Cloud plant for the year.

e. A St. Cloud subcontractor has offered to produce the parts for job no. 110 for a price of $8 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 $8 per unit part from the subcontractor or continue to make the parts for job no. 110 itself?

multiple choice

a.) Buy part from the subcontractor

b.) Continue to make the part

f. 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 $15,000?