WALDEN COMPANY (B)

Refer to the Walden (A) case.

One of the jobs that Walden completed during the year was for a furniture retailer who ordered a batch of futon frames. Direct materials consumed for this job amounted to $7,000. Three thousand hours of direct labor were spent on the job, at a cost of $20,000. Per the terms of the contract, the purchaser was to pay Walden the cost of making the frames plus a profit of twenty percent of the cost.

Required

Determine the price for the futons, according to the terms of the contract.

Factory Overhead Rate	$
Total factory overhead incurred	154,000
Total direct labor costs	180,000
Factory overhead rate	85.6%

Factory overhead allocated to the job	$
Direct labor costs	20,000
Factory overhead rate	85.6%
Factory overhead allocated to the job	17,111.11

Cost of the job	$
Direct materials	7,000
Direct labor costs	20,000
Factory overhead allocated	17,111.11
Cost of the job	44,111.11
Profit of 20%	8,822.22
Price of Futon	52,933.33

When determining the cost of the futons, you are to analyze how overhead cost should be allocated. Depending on the cost method (cost driver) you choose, the cost of the futon varies. Your analysis should include at least three methods of overhead cost allocation, which should result in three different prices.