Problem 216 Plantwide Predetermined Overhead Rates Pricing L

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3] Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates Direct labor-hours required to support estimated production Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour 80,000 40,000 $240,000 $1.80 $ 3.60 During the year, Job 550 was started and completed. The following information is available with respect to this job Direct materials Direct labor cost Direct labor-hours Machine-hours $ 207 $ 257 15 Required 1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base Under this approach a. Compute the plantwide predetermined overhead rate b. Compute the total manufacturing cost of Job 550 C. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? 2. Assume that Landen\'s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approachh a. Compute the plantwide predetermined overhead rate b. Compute the total manufacturing cost of Job 550 C. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? Round your intermediate calculations to 2 decimal places. Round your Predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.)

Solution

Calculate following :

1.	Direct labour hours
a	Predetermine overhead rate (240000/80000)+1.80	4.80	per DLH
b.	Total manufacturing cost of job 550 (207+257+15*4.8)	536
c.	Selling price (536*200%+536)	1608
2.	Machine hour
a.	Predetermine overhead rate (240000/40000+3.6)	9.6	per MH
b.	Total manufacturing cost of job 550 (207+257+5*9.6)	512
c.	Selling price (512*200%+512)	1536