Landen Corporation uses a job-order costing system. At the beginning of the year
ID: 2539750 • Letter: L
Question
Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production 120,000 Machine-hours required to support estimated production 60,000 Fixed manufacturing overhead cost $ 336,000 Variable manufacturing overhead cost per direct labor-hour $ 3.60 Variable manufacturing overhead cost per machine-hour $ 7.20 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials $ 206 Direct labor cost $ 238 Direct labor-hours 15 Machine-hours 5 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 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?
Explanation / Answer
Plantwide predetermined overhead rate (Assuming that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base.)
Fixed manufacturing overhead cost $ 336,000
direct labor hours-120,000 hours
overhead per hour-$336,000/120,000
-$2.8 per hour
Total manufacturing cost of Job 550.
direct material $206
direct labor- $ 238
variable manufacturing overhead
per direct labor hour-$54
(15*3.60)
variable manufacturing overhead
per direct machine hour-$36
(5*7.20)
fixed manufacturing overhead-$42
(15*2.80)
total manufacturing overhead-$576
Selling price established for Job 550
total manufacturing overhead-$576
+markup(200% on $576)=$1152
selling price=$1728
Plantwide predetermined overhead rate (Assuming that Landen has historically used a plantwide predetermined overhead rate with direct machine-hours as the allocation base.)
Fixed manufacturing overhead cost $ 336,000
direct machine hours-60,000 hours
overhead per hour-$336,000/60,000
-$5.6 per hour
Total manufacturing cost of Job 550.
direct material $206
direct labor- $ 238
variable manufacturing overhead
per direct labor hour-$54
(15*3.60)
variable manufacturing overhead
per direct machine hour-$36
(5*7.20)
fixed manufacturing overhead-$28
(5*5.60)
total manufacturing overhead-$562
Selling price established for Job 550
total manufacturing overhead-$562
+markup(200% on $562)=$1124
selling price=$1686
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