Question

In: Accounting

Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the...

Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $3,000. 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 uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year:

Department
Fabricating Machining Assembly Total Plant
Manufacturing overhead $ 381,500 $ 436,000 $ 98,100 $ 915,600
Direct labor $ 218,000 $ 109,000 $ 327,000 $ 654,000

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 $ 4,800 $ 500 $ 3,200 $ 8,500
Direct labor $ 6,400 $ 800 $ 8,000 $ 15,200
Manufacturing overhead ? ? ? ?

Required:

1. Using the company's plantwide approach:

a. Compute the plantwide predetermined rate for the current year.

PREDETERMINED OVERHEAD RATE____________% OF DIRECT LABOR COST

b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

MANUFACTURING OVERHEAD COST APPLIED______________

2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions:

a.Compute the predetermined overhead rate for each department for the current year.

FABRICATING DEPARTMENT_____% OF DIRECT LABOR COST

MACHINING DEPARTMENT _____% OF DIRECT LABOR COST

ASSEMBLY DEPARTMENT ____% OF DIRECT LABOR COST

b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

MANUFACTURING OVERHEAD COST APPLIED ______

4. 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 using a plantwide predetermined overhead rate?

COMPANY'S BID PRICE __________

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

MANUFACTURING OVERHEAD COST APPLIED ____________

Solutions

Expert Solution

1a) predetermined overhead rate
total manufacturing cost/total direct labor
915600/654000
140%
b) overhead applied
15200*140%
21280
2a) Fabricating Machining Assembly
manufacturing overhead 381,500 436,000 98,100 915,600
direct labor 218,000 109,000 327,000 654,000
overhead rate 175% 400% 30%
2b) Fabricating Machining Assembly
direct labor 6,400 800 8,000 15,200
overhead rate 175% 400% 30%
manufacturing overhead applied 11200 3200 2400 16800 answer
4a) total manufacturing cost
direct materials 8,500
direct labor 15,200
overhead applied 21280
total manufacturing cost 44,980
Bid price = 44980*150%
67470 answer
b) dpartmental overhead rate when used
Fabricating Machining Assembly total
direct materials 4,800 500 3,200 8,500
direct labor 6,400 800 8,000 15,200
overhead applied 11200 3200 2400 16800
total cost 22,400 4500 13,600 40,500
Bid price =40500*150%
60750 answer

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“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...
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“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 uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to...
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