\"Don\'t tell me we\'ve lost another bid!\" exclaimed Sandy Kovallas, president
ID: 2519183 • Letter: #
Question
"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $9,800 on the Hastings job." "I just can’t figure it out," said Kovallas. "It seems we’re either too high to get the job or too low to make any money on half the jobs we bid anymore. What’s happened?"
Lenko Products manufactures specialized goods 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 Hastings job, for example, would have required manufacturing costs in the three departments as follows:
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
2. Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:
a.Compute the rate for each department for the current year.(Round predetermined overhead percentages to the nearest whole percent.)
b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. (Round your predetermined overhead percentages to the nearest whole percent.)
Department Cutting Machining Assembly Total Plant Direct labor $ 310,000 $ 213,000 $ 400,000 $ 923,000 Manufacturing overhead $ 525,000 $ 929,640 $ 96,000 $ 1,550,640Explanation / Answer
Req a: Cutting Machining Assembly Total Direct Labour 310000 213000 400000 923,000 Manufacturing Overheads 525000 929640 96000 1,550,640 Pre-determined OH rate 169.35% 436.45% 24% 168% (Mfg Ohh/ Labour cost*100) Req b: Cutting Machining Assembly Total Material 11900 900 5600 18400 Labour 6400 1600 12900 20900 Manufacturing OH 10838.4 6983.2 3096 35112 (Labour cost*OH rate)
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