Question

“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 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 Fabricating Machining Assembly Total Plant   Direct labor $ 218,000      $ 109,000      $ 327,000      $ 654,000      Manufacturing overhead $ 381,500      $ 436,000      $ 98,100      $ 915,600         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 ?      ?        ?      ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.      Required: 1. Assuming use of a plantwide overhead rate: a. Compute the rate for the current year.          b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.          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.          b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.          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 if a plantwide overhead rate had been used to apply overhead cost?          b. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?               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 $ 208,000    $ 17,800    $ 132,000    $ 357,800      Direct labor 228,000    126,000    280,000    634,000      Manufacturing overhead $ 393,000    $ 478,000    $ 86,700    $ 957,700    a. Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.          b. Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used. (Enter overapplied overhead costs as negative amounts and underapplied overhead costs as positive amounts.)

Answer 1

Solution:

Plant wide Overhead Rate

- Plant-wide overhead rate means predetermined overhead rate of plant as a whole.

- Overheads are the indirect manufacturing costs incurred on the making of product. These costs are not directly traceable with the production volume because it incurred for a period or in lum sum amount.

- Generally, the overhead costs are apply to the production department on predetermined basis.

- Predetermined Overhead Rate is the rate which is used to apply manufacturing overhead to products or job orders.

- Normally, it is calculated at the beginning of the period.

- It is calculated by dividing the estimated factory overhead cost by an allocation base (or suitable basis).

- Allocation bases may be direct labor hours, direct labor costs, machine hours etc..

Plant wide Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost for Plant / Estimated Allocation Base for Plant

Part 1(a) – Plant wide overhead rate for current year

Allocation Base is Direct Labor Cost

Total Estimated Direct Labor Cost for Plant = $654,000

Total Estimated Manufacturing Overhead for Plant = $915,600

Plant wide Overhead Rate = Total Estimated Manufacturing Overhead for Plant $915,600 / Total Estimated Direct Labor Cost for Plant $654,000 x 100

= 140% of direct labor cost

Part 1(b) – Applied Manufacturing Overhead Cost to the Koopers Job

Koopers Job	Direct Labor Cost	Applied Manufacturing Overhead @ 140% of Direct labor cost
Fabricating Dept	$6,400	$8,960
Machining Dept.	$800	$1,120
Assembly Dept.	$8,000	$11,200
Total Applied Manufacturing Overhead		$21,280

Part 2(a) – Departmental Overhead Rate for Current Year

Fabricating Department
Total Manufacturing Overhead	$381,500	175%	of Direct labor cost
Total Direct Labor Cost	218,000
Machining Department
Total Manufacturing Overhead	$436,000	400%	of Direct labor cost
Total Direct Labor Cost	109,000
Assembly Dept.
Total Manufacturing Overhead	$98,100	30%	of Direct Labor cost
Total Direct Labor Cost	327000

Part 2(b) – Applied Manufacturing Overhead to the Koopers Job

	Direct Labor Cost	Departmental Overhead Rate	Applied Manufacturing Overhead
Fabricating Dept	$6,400	175%	$11,200
Machining Dept.	$800	400%	$3,200
Assembly Dept.	$8,000	30%	$2,400
Total Applied Manufacturing Overhead			$16,800

Part 4(a) – Bid Price if plant wide overhead rate is applied

	Koopers Job
Direct Materials	$8,500
Direct Labor	$15,200
Applied Manufacturing Overhead (Refer Part 1(b)	$21,280
Total Manufacturing Cost	$44,980
Bid Price (150% of total manufacturing Cost)	$67,470 (44,980*150%)

Bid Price of Job = $67,470

Part 4(b) – Bid Price if departmental overhead rate is applied

	Koopers Job
Direct Materials	$8,500
Direct Labor	$15,200
Applied Manufacturing Overhead (Refer Part 2(b)	$16,800
Total Manufacturing Cost	$40,500
Bid Price (150% of total manufacturing Cost)	$60,750 (40,500*150%)

Bid Price of Job = $60,750

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.