\"Don\'t tell me we\'ve lost another bid!\" exclaimed Sandy Kovallas, president
ID: 2519185 • 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.
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 Hastings job if the plantwide overhead rate had been used to apply overhead cost?
b.What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
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
Predetermined Overhead Rate :-
= Estimated Total Manufacturing Overhead Cost / Estimated Total amount of the allocation base
= $1550640 / $923000
= 168%
Overhead Applied = $20900 * 168% = $35112
Departmental Overhead Rate :-
Overhead Applied :-
Cutting = $6400 * 169% = $10816
Machining = $1600 * 436% = $6976
Assembly = $12900 * 24% = $3096
Total Overhead Applied = $10816+$6976+$3096 = $20888
4a) . Calculation for Bid Price (as per plant wide overhead rate) :-
Total Manufacturing Cost = $18400 + $20900 + $35112 = $74412
Bid Price = $74412 * 150% = $111618
4b) . Calculation for Bid Price (as per Departmental overhead rate) :-
Total Manufacturing Cost = $18400 + $20900 + $20888 = $60188
Bid Price = $60188 * 150% = $90282
Particulars Cutting Machining Assembly Estimated Manuf. overhead cost (A) 525000 929640 96000 Estimated direct labor cost (B) 310000 213000 400000 Predetermined Overhead Rate (A/B)*100 169% 436% 24%Related Questions
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