Question

The Gilster Company, a machine tooling firm, has several plants. One plant, located in St. Falls, Minnesota, uses a job order costing system for its batch production processes. The St. Falls plant has two departments through which most jobs pass. Plantwide overhead, which includes the plant manager’s salary, accounting personnel, cafeteria, and human resources, is budgeted at $300,000. During the past year, actual plantwide overhead was $280,000. Each department’s overhead consists primarily of depreciation and other machine-related expenses. Selected budgeted and actual data from the St. Falls plant for the past year are as follows.

	Department A				Department B
Budgeted department overhead
(excludes plantwide overhead)	$	120,000			$	566,500
Actual department overhead		144,000				584,500
Expected total activity:
Direct labor hours		60,000				20,000
Machine-hours		15,000				55,000
Actual activity:
Direct labor hours		61,000				19,000
Machine-hours		15,700				57,000

For the coming year, the accountants at St. Falls 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	$	22,500
Direct labor cost:
Department A (2,600 hr)		39,000
Department B (800 hr)		10,000
Machine-hours projected:
Department A		120
Department B		1,200
Units produced		14,000

a-1. Assume the St. Falls plant uses a single plantwide overhead rate to assign all overhead (plantwide and department) costs to jobs. Find the overhead rate by using expected direct labor hours.

a-2. Determine the projected amount of total manufacturing costs per unit for the units in job no. 110.

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 for job 110 using the three separate rates computed in b-1 and b-2.

c-1. The sales policy at St. Falls dictates that job bids be calculated by adding 25 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 St. Falls dictates that job bids be calculated by adding 25 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?

Answer 1

Answer is given below with working