Blast it said David Wilson president of Teledex Company Weve

“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $2,000. 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 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:

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:

Required:

1. Using the company\'s plantwide approach:

a. Compute the plantwide predetermined 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 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.

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 using a plantwide predetermined overhead rate?

b.What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

	Department
	Fabricating	Machining	Assembly	Total Plant
Manufacturing overhead	$	369,250	$	422,000	$	94,950	$	886,200
Direct labor	$	211,000	$	105,500	$	316,500	$	633,000

Solution

Part 1 Markup on job cost 75.00% Department Milling Assembly Machine-hours 60000 3000 Direct labor-hours 8000 80000 Total fixed manufacturing overhead cost $300,000 $500,000 Variable manufacturing overhead per machine-hour $2 Variable manufacturing overhead per direct labor-hour $3.75 Cost summary for Job 407 Department Milling Assembly Machine-hours 90 4 Direct labor-hours 5 20 Direct materials $800 $370 Direct labor cost $70 $280 Enter a formula into each of the cells marked with a ? below Step 1: Calculate the estimated total manufacturing overhead cost for each department Milling Assembly Total fixed manufacturing overhead cost (a) $300,000 $500,000 Variable manufacturing overhead per machine-hour or direct labor-hour (b) $2 $3.75 Total machine-hours or direct labor-hours (c) 60000 80000 Total variable manufacturing overhead = d = b x c $120,000 $300,000 Total manufacturing overhead = e = a + d $420,000 $800,000 Step 2: Calculate the predetermined overhead rate in each department Milling Assembly Total manufacturing overhead (e) $420,000 $800,000 Total machine-hours or direct labor-hours (c) 60000 80000 Predetermined overhead rate per machine-hour or direct labor-hour = f = e/c $7 $10 Step 3: Calculate the amount of overhead applied from both departments to Job 407 Milling Assembly Predetermined overhead rate per machine-hour or direct labor-hour (f) $7 $10 Machine-hours or direct labor-hours for the job (g) 90 20 Manufacturing overhead applied h = f/g $630 $200 Step 4: Calculate the total job cost for Job 407 Milling Assembly Total Direct materials $800 $370 $1,170 Direct labor cost $70 $280 $350 Manufacturing overhead applied $630 $200 $830 Total cost of Job 407 $2,350 Step 5: Calculate the selling price for Job 407 Total cost of Job 407 $2,350 Markup 75.00% Selling price of Job 407 = Total cost x (1+ mark up) $4,112.5 Part 2 Data Markup on job cost 75.00% Department Milling Assembly Machine-hours 60000 3000 Direct labor-hours 8000 80000 Total fixed manufacturing overhead cost $390,000 $500,000 Variable manufacturing overhead per machine-hour $2 Variable manufacturing overhead per direct labor-hour $3.75 Cost summary for Job 408 Department Milling Assembly Machine-hours 90 4 Direct labor-hours 5 20 Direct materials $800 $370 Direct labor cost $70 $280 Enter a formula into each of the cells marked with a ? below Step 1: Calculate the estimated total manufacturing overhead cost for each department Milling Assembly Total fixed manufacturing overhead cost (a) $390,000 $500,000 Variable manufacturing overhead per machine-hour or direct labor-hour (b) $2 $3.75 Total machine-hours or direct labor-hours (c) 60000 80000 Total variable manufacturing overhead = d = b x c $120,000 $300,000 Total manufacturing overhead = e = a + d $510,000 $800,000 Step 2: Calculate the predetermined overhead rate in each department Milling Assembly Total manufacturing overhead (e) $510,000 $800,000 Total machine-hours or direct labor-hours (c) 60000 80000 Predetermined overhead rate per machine-hour or direct labor-hour = f = e/c $8.5 $10 Step 3: Calculate the amount of overhead applied from both departments to Job 407 Milling Assembly Predetermined overhead rate per machine-hour or direct labor-hour (f) $8.5 $10 Machine-hours or direct labor-hours for the job (g) 90 20 Manufacturing overhead applied h = f/g $765 $200 Step 4: Calculate the total job cost for Job 407 Milling Assembly Total Direct materials $800 $370 $1,170 Direct labor cost $70 $280 $350 Manufacturing overhead applied $765 $200 $965 Total cost of Job 408 $2,485 Step 5: Calculate the selling price for Job 408 Total cost of Job 408 $2,485 Markup 75.00% Selling price of Job 408 = Total cost x (1+ mark up) $4,348.75 Part 3 b) No change Selling Price for Job 408 will be similar to part 1 Data Markup on job cost 75.00% Department Milling Assembly Machine-hours 60000 4000 Direct labor-hours 8000 80000 Total fixed manufacturing overhead cost $390,000 $500,000 Variable manufacturing overhead per machine-hour $2 Variable manufacturing overhead per direct labor-hour $3.75 Cost summary for Job 408 Department Milling Assembly Machine-hours 90 4 Direct labor-hours 5 20 Direct materials $800 $370 Direct labor cost $70 $280 Enter a formula into each of the cells marked with a ? below Step 1: Calculate the estimated total manufacturing overhead cost for each department Milling Assembly Total fixed manufacturing overhead cost (a) $390,000 $500,000 Variable manufacturing overhead per machine-hour or direct labor-hour (b) $2 $3.75 Total machine-hours or direct labor-hours (c) 60000 80000 Total variable manufacturing overhead = d = b x c $120,000 $300,000 Total manufacturing overhead = e = a + d $510,000 $800,000 Step 2: Calculate the predetermined overhead rate in each department Milling Assembly Total manufacturing overhead (e) $510,000 $800,000 Total machine-hours or direct labor-hours (c) 60000 80000 Predetermined overhead rate per machine-hour or direct labor-hour = f = e/c $8.5 $10 Step 3: Calculate the amount of overhead applied from both departments to Job 407 Milling Assembly Predetermined overhead rate per machine-hour or direct labor-hour (f) $8.5 $10 Machine-hours or direct labor-hours for the job (g) 90 20 Manufacturing overhead applied h = f/g $765 $200 Step 4: Calculate the total job cost for Job 407 Milling Assembly Total Direct materials $800 $370 $1,170 Direct labor cost $70 $280 $350 Manufacturing overhead applied $765 $200 $965 Total cost of Job 408 $2,485 Step 5: Calculate the selling price for Job 408 Total cost of Job 408 $2,485 Markup 75.00% Selling price of Job 408 = Total cost x (1+ mark up) $4,348.75 Part 4 b) No change Selling Price for Job 408 will be similar to part 1 Data Markup on job cost 75.00% Department Milling Assembly Machine-hours 60000 3000 Direct labor-hours 8000 40000 Total fixed manufacturing overhead cost $390,000 $500,000 Variable manufacturing overhead per machine-hour $2 Variable manufacturing overhead per direct labor-hour $3.75 Cost summary for Job 408 Department Milling Assembly Machine-hours 90 4 Direct labor-hours 5 20 Direct materials $800 $370 Direct labor cost $70 $280 Enter a formula into each of the cells marked with a ? below Step 1: Calculate the estimated total manufacturing overhead cost for each department Milling Assembly Total fixed manufacturing overhead cost (a) $390,000 $500,000 Variable manufacturing overhead per machine-hour or direct labor-hour (b) $2 $3.75 Total machine-hours or direct labor-hours (c) 60000 40000 Total variable manufacturing overhead = d = b x c $120,000 $150,000 Total manufacturing overhead = e = a + d $510,000 $650,000 Step 2: Calculate the predetermined overhead rate in each department Milling Assembly Total manufacturing overhead (e) $510,000 $650,000 Total machine-hours or direct labor-hours (c) 60000 40000 Predetermined overhead rate per machine-hour or direct labor-hour = f = e/c $8.5 $16.25 Step 3: Calculate the amount of overhead applied from both departments to Job 407 Milling Assembly Predetermined overhead rate per machine-hour or direct labor-hour (f) $8.5 $16.25 Machine-hours or direct labor-hours for the job (g) 90 20 Manufacturing overhead applied h = f/g $765 $325 Step 4: Calculate the total job cost for Job 407 Milling Assembly Total Direct materials $800 $370 $1,170 Direct labor cost $70 $280 $350 Manufacturing overhead applied $765 $325 $1,090 Total cost of Job 408 $2,610 Step 5: Calculate the selling price for Job 408 Total cost of Job 408 $2,610 Markup 75.00% Selling price of Job 408 = Total cost x (1+ mark up) $4,567.5