Question

Teledex Company manufactures product to customers’ specification 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 350,000 400,000 90,000 840,000 Direct Labor 200,000 100,000 300,000 600,000 Jobs require varying amounts of work in the three departments. The coopers job, for example, would have required manufacturing costs in the three departments as follows: Department Fabricating Machining Assembly Total Plant Direct Materials 3,000 200 1,400 4,500 Direct Labor 2,800 500 9,500 Manufacturing overhead ? ? ? ? Required: 1. Using the company’s plantwide approach: a. Compute the plantwide predetermined overhead rate for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the coopers job 2. Suppose that instead od 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. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 3. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job. 4. Assume that it is customary in the industry to bid jobs 150% of total manufacturing cost (direct materials, direct labor and applied overhead). What was the company’s bid price on the Koopers Job using a plantwide predetermined overhead rate? What would the bid price have been if departmental predetermined overhead rate had been used to apply overhead cost?

Answer 1

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Teledex
Answer 1 a
Calculation of Plant wide OH Rate	Fabricating	Machining	Assembly	Total	Note
Manufacturing overhead	350,000.00	400,000.00	90,000.00	840,000.00	A
Direct Labor	200,000.00	100,000.00	300,000.00	600,000.00	B
Predetermined OH Rate				1.40	C=A/B
Answer 1 b
Allocated OH for Koopers Job	Fabricating	Machining	Assembly	Total
Direct Labor	2,800.00	500.00	9,500.00	12,800.00	D
Predetermined OH Rate	1.40	1.40	1.40		See C
Allocated OH	3,920.00	700.00	13,300.00	17,920.00	E=C*D
Answer 2 a
Calculation of Departmental OH Rate	Fabricating	Machining	Assembly	Note
Manufacturing overhead	350,000.00	400,000.00	90,000.00	F
Direct Labor	200,000.00	100,000.00	300,000.00	G
Predetermined OH Rate	1.75	4.00	0.30	H=F/G
Answer 2 b
Allocated OH for Koopers Job	Fabricating	Machining	Assembly	Total
Direct Labor	2,800.00	500.00	9,500.00	12,800.00	I
Predetermined OH Rate	1.75	4.00	0.30		See H
Allocated OH	4,900.00	2,000.00	2,850.00	9,750.00	J=H*I
Answer 3	OH allocated
Single rate	17,920.00
Departmental rate	9,750.00
Difference	8,170.00
Answer 4 a
Bid price under plant wide OH rate	Fabricating	Machining	Assembly	Total
Direct Materials	3,000.00	200.00	1,400.00	4,600.00	K
Direct Labor	2,800.00	500.00	9,500.00	12,800.00	See I
Allocated OH	3,920.00	700.00	13,300.00	17,920.00	See E
Total manufacturing cost	9,720.00	1,400.00	24,200.00	35,320.00	L=K+E+I
Bid price				52,980.00	M= L*150%
Answer 4 b
Bid price under departmental OH rate	Amount $
Direct Materials	4,600.00				See K
Direct Labor	12,800.00				See I
Allocated OH	9,750.00				See J
Total manufacturing cost	27,150.00				N=K+I+J
Bid price	40,725.00				O=N*150%