Question

“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $4,000. 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	$	207,000	$	103,500	$	310,500	$	621,000
Manufacturing overhead	$	362,250	$	414,000	$	93,150	$	869,400

    

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	$	3,700	$	200	$	2,100	$	6,000
Direct labor	$	4,200	$	500	$	6,900	$	11,600
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
	Fabricating		Machining		Assembly		Total plant
Direct materials	$	197,000	$	16,700	$	121,000	$	334,700
Direct labor		217,000		115,000		269,000		601,000
Manufacturing overhead	$	371,000	$	432,000	$	85,600	$	888,600

       

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

1
a)	Computation of plantwide overhead rate for the Current Year
	Estimated Total Manufacturing Overhead	$        869,400.00
	Estimated Direct Labor	$        621,000.00
	plantwide overhead rate for the Current Year	$                     1.40
b)	Caclulation of amount of manufacturing overhead cost that would have been applied to the Koopers job.
	Total Labor cost for Koopers Job	$          11,600.00
	plantwide overhead rate for the Current Year	$                     1.40
	manufacturing overhead cost	$          16,240.00

2
a)	Computation of separate predetermined overhead rate in each department.
		Fabricating	Machining	Assembly
	Estimated Total Manufacturing Overhead	$ 362,250.00	$ 414,000.00	$    93,150.00
	Estimated Direct Labor	$ 207,000.00	$ 103,500.00	$ 310,500.00
	plantwide overhead rate for the Current Year	$               1.75	$               4.00	$               0.30
b)	Caclulation of amount of manufacturing overhead cost that would have been applied to the Koopers job.
		Fabricating	Machining	Assembly	Total
	Total Labor cost for Koopers Job	$       4,200.00	$          500.00	$      6,900.00
	plantwide overhead rate for the Current Year	$               1.75	$               4.00	$               0.30
	manufacturing overhead cost	$       7,350.00	$      2,000.00	$      2,070.00	$ 11,420.00

4
a	Calculation of Company's bid price on the Koopers job if a plantwide overhead rate had been used to apply overhead cost
	Direct materials	$    6,000.00
	Direct labor	$ 11,600.00
	Manufacturing overhead	$ 16,240.00
	Total Manufacturing Cost	$ 33,840.00
	Company Bid Price which is 150% of Manufacturing Cost	$ 50,760.00
b)	Calculation of bid price have been if departmental overhead rates had been used to apply overhead cost
		Fabricating	Machining	Assembly	Total
	Direct materials	$    3,700.00	$     200.00	$    2,100.00	$    6,000.00
	Direct labor	$    4,200.00	$     500.00	$    6,900.00	$ 11,600.00
	Manufacturing overhead	$    7,350.00	$ 2,000.00	$    2,070.00	$ 11,420.00
	Total Manufacturing Cost	$ 15,250.00	$ 2,700.00	$ 11,070.00	$ 29,020.00
	Company Bid Price which is 150% of Manufacturing Cost				$ 43,530.00

5
a	Calculation of underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.
	Actual Overhead Costs	$ 888,600.00
	Applied overhead cost ($601,000 x 1.4)	$ 841,400.00
	Underapplied overhead cost	$    47,200.00
b	Calculation of underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used.
		Fabricating	Machining	Assembly	Total
	Actual Overhead Costs	$ 371,000.00	$ 432,000.00	$ 85,600.00	$ 888,600.00
	Applied overhead cost	$ 379,750.00	$ 460,000.00	$ 80,700.00	$ 920,450.00
	(Overapplied)/Underapplied overhead cost	$    (8,750.00)	$ (28,000.00)	$    4,900.00	$ (31,850.00)