Question

Case 2-22 Plantwide versus Departmental Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3, LO2-4]

“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $2,000. It seems we’re either too high to get the job or too low to make any money on half the jobs we bid.”

Teledex Company manufactures products to customers’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year:

	Department
	Fabricating		Machining		Assembly		Total Plant
Manufacturing overhead	$	350,000	$	400,000	$	90,000	$	840,000
Direct labor	$	200,000	$	100,000	$	300,000	$	600,000

Jobs require varying amounts of work in the three departments. The Koopers job, for example,
would have required manufacturing costs in the three departments as follows:

	Department
	Fabricating			Machining			Assembly			Total Plant
Direct materials	$	3,000		$	200		$	1,400		$	4,600
Direct labor	$	2,800		$	500		$	6,200		$	9,500
Manufacturing overhead		?			?			?			?

Required:

1. Using the company's plantwide approach:

a.Compute the plantwide predetermined rate for the current year.

b.Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions:

a.Compute the predetermined overhead rate for each department for the current year.

b.Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).

a.What was the company’s bid price on the Koopers job using a plantwide predetermined overhead rate?

b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Garrison 16e Rechecks 2017-08-08, 2018-08-21, 2018-08-31, 2018-09-04, 2018-09-27

This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Next Visit question map

Question8of8Total8 of 8

Prev

Answer 1

Solution 1-a:

Plantwide Predetermined Overhead Rate = Total Plant Overhead / Total Plant Direct labor = $840000 / $600000 * 100 = 140%

Solution 1-b:

Manufacturing overhead applied to Koopers Job = Total Direct labor cost *140% = $9500*140% = $13300

Solution 2-a:

Computation of overhead rate for Each department
Particulars	Fabricating	Machining	Assembly
Overhead cost of department	$350,000	$400,000	$90,000
/Total direct labor Cost	$200,000	$100,000	$300,000
Overhead rate of department	175%	400%	30%

Solution 2-b:

Computation of Manufacturing Overhead applied to Koopers Job
Particulars	Fabricating	Machining	Assembly
Direct Labor	$2800	$500	$6200
Overhead rate of department	175%	400%	30%
Manufacturing overhead applied	$4900	$2000	$1860

Total Manufacturing overehad applied = $4900 + $2000 + $1860 = $8760

Solution 4-a:

Computation of Bid price on Koopers Job (Using Plantwide Overhead rate)
Particulars	Amount
Total Direct material	$4600
Total Direct Labor	$9500
Total manufacturing Overhead applied	$13300
Total manufacturing cost	$27400
Bid Price ($27400*150%)	$41100

Solution 4-b:

Computation of Bid price on Koopers Job (Using Departmental Overhead rate)
Particulars	Amount
Total Direct material	$4600
Total Direct Labor	$9500
Total manufacturing Overhead applied	$8760
Total manufacturing cost	$22860
Bid Price ($22860*150%)	$34290

Leave comment in case of any doubt or if answers don't match.