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

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 100,000
Machine-hours required to support estimated production 50,000
Fixed manufacturing overhead cost $ 280,000
Variable manufacturing overhead cost per direct labor-hour $ 2.80
Variable manufacturing overhead cost per machine-hour $ 5.60

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

Direct materials $ 216
Direct labor cost $ 327
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?

(Round your intermediate calculations to 2 decimal places. Round your "Predetermined Overhead Rate" answers to 2 decimal places and all other answers to the nearest whole dollar.)

Solutions

Expert Solution

1).

a). Plantwide predetermined overhead rate = Fixed overhead rate per labor hour + Var. overhead rater per labor hour
= ($280,000 / 100,000 hours) + $2.80
= $2.8 + $2.8
= $5.60 per labor hour

b). Total manufacturing cost of Job 550.

Direct material = $216
Direct labor = $327
Manufacturing overhead ($5.6 * 15 hours) = $84
Total manufacturing cost = $627

c). Selling price = Total manufacturing cost + Markup
= $627 + ($627 * 200%)
= $627 + $1,254
= $1,881

2).

a). Plantwide predetermined overhead rate = Fixed overhead rate per machine hour + Var. overhead rater per machine hour
= ($280,000 / 50,000 hours) + $5.60
= $5.6 + $5.6
= $11.20 per machine hour

b). Total manufacturing cost of Job 550.

Direct material = $216
Direct labor = $327
Manufacturing overhead ($11.2 * 5 hours) = $56
Total manufacturing cost = $599

c). Selling price = Total manufacturing cost + Markup
= $599 + ($599 * 200%)
= $599 + $1,198
= $1,797

ekkarill92 answered 1 year ago
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