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

Requirement 1a Plant wide predetermined manufacturing overhead rate = Total manufacturing overheads /Total Direct labour = $886,200/$633,000 =$1.40 per labour dollar Requirement 1b Application of Manufacturing overhead to Koopers Job = Total direct Labor X predetermined overhead rate = $13,000 X$1.4 = $18,760 Requirement 2a Departmental predetermined manufacturing overhead rate Department Fabrication Machining Assembly Total Plant Manufacturing overhead        3,69,250      4,22,000          94,950        8,86,200 Direct labor        2,11,000      1,05,500      3,16,500        6,33,000 Manufacturing overhead rate 1.75 4.00 0.30 Requirement 2b Application of Manufacturing overhead to Koopers Job Department Fabrication Machining Assembly Total Direct labor              5,000 700            7,300 Manufacturing overhead rate 1.75 4.00 0.30 Manufacturing overhead              8,750            2,800            2,190            13,740 (5000 X1.75) (700 X4.00) (7300 X0.3) Requirement 4a Bid Price on the koopers job using a plant wide predetermined overhead rate Direct materials $7,000 Direct Labour            13,000 Manufacturing overheads applied            18,760 Total Manufacturing costs            38,760 Bid Price (150% of total manufacturing costs)            58,140 Requirement 4b Bid Price on the koopers job using a departmental predetermined overhead rate Direct materials $7,000 Direct Labour            13,000 Manufacturing overheads applied            13,740 Total Manufacturing costs            33,740 Bid Price (150% of total manufacturing costs)            50,610