“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost th

Question

“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 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. As the predetermined overhead rate to percent of direct labor.

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 $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.”

Explanation / Answer

Fabricating Machining Assembly Total Plant   Direct labor $    205,000 $ 102,500 $    307,500 $          615,000   Manufacturing overhead $    358,750 $ 410,000 $      92,250 $          861,000 Manufacturing OH as % of Direct Labor cost 140.00% 1a Plantwide predtermined overhead rate as % of Direct Labor cost is 140% of   Direct Labor cost 1b. Amount of Overhead to be applied as per plantwide OH rate @140% of Direct labor cost Koopers Job   Department Fabricating Machining Assembly Total Plant   Direct materials $ 3500 $ 200 $ 1900 $             5,600   Direct labor $ 3800 $ 500 $ 6700 $            11,000   Manufacturing overhead $       5,320 $         700 $        9,380 $            15,400 Total Cost            32,000 2a. Department wise Overhead rate as % of Direct labor cost   Fabricating Machining Assembly Total Plant   Direct labor $    205,000 $ 102,500 $    307,500 $          615,000   Manufacturing overhead $    358,750 $ 410,000 $      92,250 $          861,000 Manufacturing OH as % of Direct Labor cost 175.00% 400.00% 30.00% 2b. Amount of Overhead to be applied as per department wise OH rate Koopers Job   Department Fabricating Machining Assembly Total Plant   Direct materials $ 3500 $ 200 $ 1900 $             5,600   Direct labor $ 3800 $ 500 $ 6700 $            11,000 Manufacturing OH as % of Direct Labor cost 175.00% 400.00% 30.00%   Manufacturing overhead $       6,650 $      2,000 $        2,010 $            10,660 Total Cost                27,260 4a Total Cost of koopers Job considering plantwide OH rate =                32,000 Bid Mark up @15% on cost                    4,800 Total Bid Price for Koopers Job   $     36,800.00 4b. Total Cost of koopers Job considering department wise OH rate =                27,260 Bid Mark up @15% on cost                    4,089 Total Bid Price for Koopers Job   $     31,349.00 5a Department    Cutting Machining Assembly Total plant   Direct materials $      195,000 $      16,500 $      119,000 $              330,500   Direct labor      215,000    113,000      267,000              595,000   Manufacturing overhead $      367,000 $    428,000 $         85,400 $              880,400 Predetermined plantwide OH rate @140% of direct labor cost     301,000 158,200      373,800             833,000 Underapplied Overhead        66,000 269,800             335,800 Overapplied Ovehead      288,400 Net Underapplied Overhead                47,400 5b Department    Cutting Machining Assembly Total plant   Direct materials $      195,000 $      16,500 $      119,000 $              330,500   Direct labor      215,000    113,000      267,000              595,000   Manufacturing overhead $      367,000 $    428,000 $         85,400 $              880,400 Predetermined department wise OH rate as% of direct labor cost 175.00% 400.00% 30.00% Predetrmined OH amt $     376,250 452,000        80,100             908,350 Underapplied Overhead           5,300                  5,300 Overapplied Ovehead          9,250      24,000                33,250 Net Overapplied Overhead                27,950

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