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The Menlo Corporation uses a job-order costing system. At the beginning of the year Menlo made the following cost estimates: Direct Labor hours required to
The Menlo Corporation uses a job-order costing system. At the beginning of the year Menlo made the following cost estimates: Direct Labor hours required to support estimated production 150,000 Machine hours required to support estimated production 75,000 Estimated Fixed Manufacturing Cost $900,000 Estimated Variable OH cost per direct labor hour $1.50 Estimated Variable OH cost per machine hour $3.00 During the most recent year, Job 1234 was started and completed and the following cost data was collected: Direct Material $200 Direct Labor Cost $ $300 Direct Labor Hours 15 dlhrs. Machine Hours 5 mchrs. Required: 1. Assume Menlo has historically used a plantwide predetermined overhead rate with dire4ct labor-hours as the allocation base. Using this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 1234. c. If Menlo uses a market percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 1234? 2. Assume that Menlo'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 1234. C. If Menlo uses a market percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 1234? 3. Considering the results obtained in parts 1 & 2, is the Menlo's Controller correct that the use of machine as the allocation base that will yield a more accurate cost? What is your rationale for your conclusion
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