Question

"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $10,000 on the Hastings job." "I just can’t figure it out," said Kovallas. "It seems we’re either too high to get the job or too low to make any money on half the jobs we bid anymore. What’s happened?"  

  
Lenko Products manufactures specialized goods 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
	Cutting				Machining				Assembly				Total Plant
Direct labor	$	316,000			$	211,000			$	402,000			$	929,000
Manufacturing overhead	$	525,000			$	925,850			$	82,000			$	1,532,850

    
Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows:

        

	Department
	Cutting				Machining				Assembly				Total Plant
Direct materials	$	11,900			$	800			$	5,700			$	18,400
Direct labor	$	6,500			$	1,800			$	13,000			$	21,300
Manufacturing overhead		?				?				?				?

The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

Required:

1. Assuming the use of a plantwide overhead rate:

a. Compute the 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 Hastings job.

	Manufacturing overhead cost

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.(Round predetermined overhead percentages to the nearest whole percent.)

	Predetermined Overhead Rate Cutting department % Machining department % Assembly department %

b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. (Round your predetermined overhead percentages to the nearest whole percent.)

	Manufacturing overhead cost

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 Hastings job if the plantwide overhead rate had been used to apply overhead cost?

	Bid price with plant wide rate

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

  

	Bid price with departmental rate

   

5. 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	$	759,000			$	91,000			$	410,000			$	1,260,000
Direct labor	$	318,000			$	209,000			$	341,000			$	868,000
Manufacturing overhead	$	559,000			$	829,000			$	93,000			$	1,481,000

       

a. Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.

	overhead cost

b. Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used.

	Cutting overhead cost Machining overhead cost Assembly overhead cost Total plant overhead cost

Answer 1

Solution:

Part 1a – Predetermined Overhead Rate = Estimated Total Manufacturing Overhead / Total Estimated Direct Labor Cost x 100

= 1,532,850 / 929,000 x 100

= 165% of direct labor cost

Part 1b -- the amount of manufacturing overhead cost that would have been applied to the Hastings job

Total Direct Labor Cost for Plant for Hasting Job = $21,300

Applied Manufacturing Overhead Cost = Total Direct Labor Cost $21,300 x Overhead Rate 165%

= $35,145

Part 2a -- Rate for each department for the current yea

	Total Estimated Manufacturing Overhead	Total Estimated Direct Labor Cost	Predetermined Overhead Rate %
	(A)	(B)	(A/B)
Cutting Department	$525,000	$316,000	166%
Matching Department	$925,850	$211,000	439%
Assembly Department	$82,000	$402,000	20%

Part 2b -- the amount of manufacturing overhead cost that would have been applied to the Hastings job

	Direct Labor Cost	Predetermined Overhead Rate %	Applied Manufacturing Overhead
	(A)	(B)	(A*B)
Cutting Department	$6,500	166%	$10,790
Matching Department	$1,800	439%	$7,902
Assembly Department	$13,000	20%	$2,600
			$21,292

Total Applied Manufacturing Overhead = $21,292

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.