Question

“Don’t tell me we’ve lost another bid!” exclaimed Janice Hudson, president of Prime Products Inc. “I’m afraid so,” replied Doug Martin, the operations vice president. “One of our competitors underbid us by about $11,000 on the Hastings job.” “I just can’t figure it out,” said Hudson. “It seems we’re either too high to get the job or too low to make any money on half the jobs we bid. What’s happened?”

Prime Products manufactures specialized goods to customers’ specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labour cost. The following estimates were made at the beginning of the year:

	Department
	Cutting			Machining			Assembly			Total Plant
Direct labour	$	307,500		$	205,000		$	410,000		$	922,500
Manufacturing overhead	$	553,500		$	820,000		$	102,500		$	1,476,000

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

	Department
	Cutting			Machining			Assembly			Total Plant
Direct material	$	16,000		$	1,400		$	6,600		$	24,000
Direct labour	$	9,000		$	2,700		$	16,000		$	27,700
Manufacturing overhead		?			?			?			?

The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

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

a. What was the company’s bid price on the Hastings job?

Company's bid price:

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

Company's bid price:

5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year:

	Department
	Cutting			Machining			Assembly			Total Plant
Direct material	$	782,500		$	92,500		$	420,000		$	1,295,000
Direct labour	$	330,000		$	217,500		$	348,000		$	895,500
Manufacturing overhead	$	577,500		$	859,600		$	94,200		$	1,531,300

a. Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.

b. Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used. (Enter all overapplied values as negative numbers.)

Cutting Overapplied overhead cost or Underapplied overhead cost Rate %

Machining Overapplied overhead cost or Underapplied overhead cost Rate %

Assembly Overapplied overhead cost or Underapplied overhead cost Rate %

Total Plant   Overapplied overhead cost or Underapplied overhead cost Rate %

Answer 1

1a)	plantwide overhead rate
	Estimated MOH /Estimated direct labor cost
	1,476,000	/	922,500
	160%
b)	Applied overhead
	overhead rate		*	total direct labor cost on hastings job
	160%		*	27,700
	44320
2)a)				Cutting	Machining	Assembly	total plant
	Manufacturing overhead			553,500	820,000	102,500	1,476,000
	Direct labor cost			307,500	205,000	410,000	922,500
	MOH rate			180%	400%	25%	160%
b)				Cutting	Machining	Assembly	total plant
	direct labor cost			9,000	2,700	16,000	27,700
	MOH Rate			180%	400%	25%
	overhead applied			11418	7794	2990	22202
4a)				Cutting	Machining	Assembly	total
	Direct materials			16,000	1,400	6,600	24,000
	direct labor			9,000	2,700	16,000	27,700
	overhead applied			14400	4320	25600	44320
	total manufacturing cost			39,400	8,420	48,200	96,020
							150%
	bid price						144030	answer
b)				Cutting	Machining	Assembly	total
	Direct materials			16,000	1,400	6,600	24,000
	direct labor			9,000	2,700	16,000	27,700
	overhead applied			11418	7794	2990	22202
	total manufacturing cost			36,418	11,894	25,590	73,902
							150%
	bid price						110853
5-a)				Cutting	Machining	Assembly	total
	Actual manufacturing overhead			577,500	859,600	94,200	1,531,300
	Applied overhead			528000	348000	556800	1432800
	under applied			49,500	511,600	-462,600	98,500
	under applied overhead cost			98,500
b)				Cutting	Machining	Assembly	total
	Actual manufacturing overhead			577,500	859,600	94,200	1,531,300
	Applied overhead			594000	870000	87000	1551000
	over applied			16,500	10,400	7,200	19,700
				overapplied	overapplied	under applied	overapplied
	overapplied overhead cost			19,700