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 $200,000. During the past year, actual plantwide overhead was $185,000. 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.

Overhead rate from part a=$20.76 per direct labor hour

Overhead rate from part b= $3.51 per machine hour

	Department A				Department B
Budgeted department overhead
(excludes plantwide overhead)	$	196,000			$	559,000
Actual department overhead		142,000				574,000
Expected total activity:
Direct labor hours		36,000				10,000
Machine-hours		14,000				43,000
Actual activity:
Direct labor hours		38,500				9,400
Machine-hours		14,500				45,000

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	$	16,500
Direct labor cost:
Department A (2,000 hr)		30,000
Department B (500 hr)		10,000
Machine-hours projected:
Department A		140
Department B		1,200
Units produced		10,000

c-1. The sales policy at St. Falls dictates that job bids be calculated by adding 24 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 24 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part b?

Answer 1

Plant-wide overhead rate based on direct labor hour = $20.6 per hour (given in the question )

.

Plant-wide rate on machine hour = $3.51 per machine hour (given in the question )

.

Under machine hour Departmental overhead rate

	Dept. A	Dept. B
Budgeted OH (A)	196000	559000
Estimated Machine hrs (B)	14000	43000
Departmental overhead rate = A /B	14	13

.

c-1. The sales policy at St. Falls dictates that job bids be calculated by adding 24 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part a?

.

overhead rate

Plant-wide overhead rate based on direct labor hour = $20.6

.

calculation of Bid price of job 110

Particular	amount
Direct Material	$16500
Labor
Department A	$30000
Department B	$10000
Overhead ( (2000 + 500) * 20.6 )	$51500
Total cost	$108000
Add: Mark-up 24% o cost (108000 * 24% )	$25920
Bid	$133920

.

c-2. The sales policy at St. Falls dictates that job bids be calculated by adding 24 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part b?

.

Based on this rate, overhead are allocated

.

Plan-wide overhead are allocated on this rate for total machine hour used by Job 110.

,

Plant-wide rate on machine hour = $3.51 per machine hour (given in the question )

.

Departmental rate are used for allocated departmental overhead.

.

Under machine hour Departmental overhead rate

	Dept. A	Dept. B
Departmental overhead rate	14	13

.

calculation of Bid price of job 110

Particular	amount
Direct Material	$16500
Labor
Department A	$30000
Department B	$10000
Overhead
Plant wide (( 140+1200)*$3.51 )	$4703.4
Department A (140*$14)	$1960
Department B(1200*$13)	$15600
Total cost	$78763.4
Add: Mark-up 24% o cost (78763.4 * 24% )	$18903.22
Bid	$97667