Question

Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

  

	Molding		Fabrication			Total
Machine-hours		22,000		32,000		54,000
Fixed manufacturing overhead costs	$	740,000	$	220,000	$	960,000
Variable manufacturing overhead cost per machine-hour	$	5.50	$	5.50

  

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

  

Job D-70:	Molding		Fabrication		Total
Direct materials cost	$	374,000	$	326,000	$	700,000
Direct labor cost	$	240,000	$	160,000	$	400,000
Machine-hours		16,000		6,000		22,000

  

Job C-200:	Molding		Fabrication		Total
Direct materials cost	$	290,000	$	270,000	$	560,000
Direct labor cost	$	150,000	$	300,000	$	450,000
Machine-hours		6,000		26,000		32,000

Delph had no underapplied or overapplied manufacturing overhead during the year.

2. Assume Delph uses departmental predetermined overhead rates based on machine-hours.

a. Compute the departmental predetermined overhead rates.

b. Compute the total manufacturing cost assigned to Job D-70 and Job C-200.

c. If Delph establishes bid prices that are 140% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200?

d. What is Delph’s cost of goods sold for the year?

Answer 1

Solution:

Part 2(a) – Departmental predetermined overhead rates

	Molding Department	Fabrication Department
Estimated Total Fixed Manufacturing Overhead Costs (A)	$740,000	$220,000
Estimated Allocation Base ( Estimated Machine Hours) (B)	22,000	32,000
Departmental Predetermined Fixed Overhead Rate per machine hour (A / B)	$33.64	$6.88
Plus: Variable manufacturing overhead cost per machine-hour	$5.50	$5.50
Departmental Predetermined Overhead Rate per Machine Hour (Fixed Rate + Variable Rate)	$39.14 (33.64 + 5.50)	$12.38 (6.88 + 5.50)

Part 2(b) --- Total manufacturing cost assigned to Job D-70 and Job C-200

Job D-70:	Molding	Fabrication	Total
Direct materials cost	$374,000	$326,000	$700,000
Direct labor cost	$240,000	$160,000	$400,000
Applied Manufacturing Overhead Costs (Refer Note 1)	$626,240	$74,280	$700,520
Total Manufacturing Costs Assigned	$1,240,240	$560,280	$1,800,520
Job C-200	Molding	Fabrication	Total
Direct materials cost	$290,000	$270,000	$560,000
Direct labor cost	$150,000	$300,000	$450,000
Applied Manufacturing Overhead Costs (Refer Note 1)	$234,840	$321,880	$556,720
Total Manufacturing Costs Assigned	$674,840	$891,880	$1,566,720

Note 1 --- Applied Manufacturing Overhead Costs to each Job

Job D-70	Molding	Fabrication
Machine Hours worked (A)	16,000	6,000
Overhead Rate per Machine Hour (B)	$39.14	$12.38
Total Applied Manufacturing Overhead Costs (A*B)	$626,240	$74,280
Job C-200	Molding	Fabrication
Machine Hours worked (A)	6,000	26,000
Overhead Rate per Machine Hour (B)	$39.14	$12.38
Total Applied Manufacturing Overhead Costs (A*B)	$234,840	$321,880

Part 2(c ) --- Calculation of Bid Price for each job

	Job D-70	Job C-200
Total Manufacturing Costs	$1,800,520	$1,566,720
Bid Price (140% of Manufacturing Costs)	$2,520,728 (1,800,520 * 140%)	$2,193,408 (1,566,720 * 140%)

Part 2(d) -- Delph’s cost of goods sold for the year

	Job D-70	Job C-200	Total
Total Manufacturing Costs	$1,800,520	$1,566,720	$3,367,240

Deplh’s Total Cost of Goods Sold for the year = total manufacturing costs of Job D-70 and C-200 = $3,367,240

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