Question

Moody Corporation uses a job-order costing system with a plantwide 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		154,000
Fixed manufacturing overhead cost	$	655,000
Variable manufacturing overhead cost per machine-hour	$	4.40

Required:

1. Compute the plantwide predetermined overhead rate.

2. During the year, Job 400 was started and completed. The following information was available with respect to this job:

Direct materials	$	300
Direct labor cost	$	270
Machine-hours used		39

Compute the total manufacturing cost assigned to Job 400.

3. If Job 400 includes 60 units, what is the unit product cost for this job?

4. If Moody uses a markup percentage of 120% of its total manufacturing cost, then what selling price per unit would it have established for Job 400?

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3]

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

Direct labor-hours required to support estimated production		90,000
Machine-hours required to support estimated production		45,000
Fixed manufacturing overhead cost	$	252,000
Variable manufacturing overhead cost per direct labor-hour	$	2.40
Variable manufacturing overhead cost per machine-hour	$	4.80

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Direct materials	$	236
Direct labor cost	$	371
Direct labor-hours		15
Machine-hours		5

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’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 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

Problem 2-18 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3]

Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room.

The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates:

Direct labor-hours required to support estimated output		42,000
Fixed overhead cost	$	693,000
Variable overhead cost per direct labor-hour	$	1.00

Required:

1. Compute the predetermined overhead rate.

2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job:

Direct materials	$	660
Direct labor cost	$	175
Direct labor-hours used		10

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 60% of its total job cost, then how much would it have charged Mr. Wilkes?

Answer 1

Problem 1)

Total Manufacturing Overhead		$
Variable Overhead		677600
Fixed Overhead		665,000
		1,342,600
Plant wide Predetermined Overhead Rate = Total Budgeted Manufacturing Overhead/Estimated Machine Hours
		$1342600/154000
		$ 8.72/MH

2) Job 400
Manufacturing Costs assigned to Job 400 = 39*8.72
$	340
3) Calculation of Unit Cost	60 Units
Direct Material	$	300
Direct Labour Cost	$	270
Manufacturing Overhead	$	340
Total Manufacturing costs	$	910
No Of Units	Units	60
Per unit Cost	$	15.17
Markup(120%)	$	18.20
Total Selling Price/unit	$	33.37

Problem 2 : Job 550

1 a)	Total Manufacturing Overhead
	Fixed Overhead	$	252,000
	Estimated Direct Labour Hours	Hr	90,000
	Plant wide Predetermined Overhead Rate = Total Budgeted Manufacturing Overhead/Estimated direct lobour hours
			$252000/90000
		$	2.80	Per Machine Hour
b)	Direct Material	$	236
	Direct Labour Cost	$	371
	Variable overhead Costs	$	60
	Fixed Overhead costs- Applied	$	42
	Total Manufacturing Costs	$	709
	Markup(200%)	$	1,418
c)	Total Selling Price	$	2,127

	Job 550
2 a)	Total Manufacturing Overhead
	Fixed Overhead	$	252,000
	Estimated Machine Hours	Hr	45,000
	Plant wide Predetermined Overhead Rate = Total Budgeted Manufacturing Overhead/Estimated Machine hours
			$252000/45000
		$	5.60	Per Machine Hour
b)	Direct Material	$	236
	Direct Labour Cost	$	371
	Variable overhead Costs	$	60
	Fixed Overhead costs- Applied	$	28
	Total Manufacturing Costs	$	695
	Markup(200%)	$	1,390
c)	Total Selling Price	$	2,085