Question

“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 operates a job order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year: Department Fabricating Machining Assembly Total Plant Direct labor $ 205,000 $ 102,500 $ 307,500 $ 615,000 Manufacturing overhead $ 358,750 $ 410,000 $ 92,250 $ 861,000 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 $ 3,500 $ 200 $ 1,900 $ 5,600 Direct labor $ 3,800 $ 500 $ 6,700 $ 11,000 Manufacturing overhead ? ? ? ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

Required:

1. Assuming use of a plantwide overhead rate: a. Compute the 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 overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions: a. Compute the 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.

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

4.	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 materials	$	195,000	$	16,500	$	119,000	$	330,500
Direct labor		215,000		113,000		267,000		595,000
Manufacturing overhead	$	367,000	$	428,000	$	85,400	$	880,400

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 overapplied overhead costs as negative amounts and underapplied overhead costs as positive amounts.)

Answer 1