Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plant wide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:
Machine-hours required to support estimated production . . . . . . . . . . 165,000
Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . $1,980,000
Variable manufacturing overhead cost per machine-hour . . . . . . . . . . . . $2.00
Required:
1. Compute the plant wide predetermined overhead rate.
2. During the year, Job P90 was started, completed, and sold to the customer for $2,500. The following information was available with respect to this job:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,150
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $830
Machine-hours used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Compute the total manufacturing cost assigned to Job P90.
3. Upon comparing Job P90's sales revenue to its total manufacturing cost, the company's chief financial officer said "If this exact same opportunity walked through our front door tomorrow,
I'd turn it down rather than making it and selling it for $2,500."
a. Construct an argument (supported by numerical analysis) that refutes the chief financial officer's assertion.
b. Construct an argument (accompanied by numerical analysis) that supports the chief financial officer's assertion