Case 3-30 Plantwide versus Departmental Overhead Rates; Underapplied or Overappl

Question

Case 3-30 Plantwide versus Departmental Overhead Rates; Underapplied or Overapplied Overhead [LO3-1, LO3-2, LO3-3, LO3-7]

“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $4,000. 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.

         

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 $4,000. 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

1a) Plantwide overhead rate = $856,800/ $612,000 = $1.40

b) Koopers' job =10,800 * 1.40   = $15,120

2a) Rate for each department

b) amount of manufacturing overhead

4)The companys bid price

b)

5a)

b)

underapplied(over)                  8,000                 18,000              (6,500)         19,500

Fabricating Machining Assembly $357,000/204,000 408,000/102,000 91,800/306,000 1.75 4 .30

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