Landen Corporation uses a job-order costing system. At the beginning of the year

Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates Direet labor-hours required to support estinated production Machine-hours required to support estinated production rixed manufacturing overhead coat Variable manafacturing overhead cost per direct labor-hour Varlable manufacturing overhead coat per nachine-hour 140,000 70,000 $784,000 $ 2.00 $4.00 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 175 225 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 appro8

Explanation / Answer

Question-1: On the basis of Labour Hour a) Computation of Plant wide Predetermined Overhead Rate Fixed Overhead Rate per Hour ($784000/140000 Hour) $5.60 Variable Overhead Rate per Hour $2.00 Predetermined Overhead Rate $7.60 b)Computation of Total Manufacturing Cost Particular Amount Material $175.00 Labour $225.00 Manufacturing Overhead (15 Hour *7.60) $114.00 Total Manufacturing Cost $514.00 c) Computation of Selling Price Manufacturing Cost $514.00 Mark Up Percentage 200% Selling Price (514*200%) $1,028.00 Question-2 : On the basis of Machine Hour a) Computation of Plant wide Predetermined Overhead Rate Fixed Overhead Rate per Hour ($784000/70000 Hour) $11.20 Variable Overhead Rate per Hour $4.00 Predetermined Overhead Rate $15.20 b)Computation of Total Manufacturing Cost Particular Amount Material $175.00 Labour $225.00 Manufacturing Overhead (5 Hour *15.20) $76.00 Total Manufacturing Cost $476.00 c) Computaation of Selling Price Manufacturing Cost $476.00 Mark Up Percentage 200% Selling Price (476*200%) $952.00

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