“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost th
ID: 2540671 • Letter: #
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:
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:
Compute the rate for the current year.
Determine the amount of manufacturing overhead cost that would have been applied to
the Koopers job.
Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:
Determine the amount of manufacturing overhead cost that would have been applied to
the Koopers job.
Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).
What was the company's bid price on the Koopers job if a plantwide overhead rate had been used to apply overhead cost?
What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year.
Department
Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.
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.)
“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.”
Explanation / Answer
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.
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
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