\"Don\'t tell me we\'ve lost another bid!\" exclaimed Sandy Kovallas, president
ID: 2556366 • 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 $9,900 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.
Required:
1. Assuming the use of a plantwide overhead rate:
a. Compute the rate for the current year.
b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job.
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.)
Cutting department
Machining department
Assembly department
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.)
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?
5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year:
a. Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.
b. Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used.
Cutting
Machining
Assembly
Total Plant
Department Cutting Machining Assembly Total Plant Direct labor $ 302,000 $ 217,000 $ 407,000 $ 926,000 Manufacturing overhead $ 522,000 $ 938,680 $ 95,000 $ 1,555,680Explanation / Answer
Req 1-a: Pre-determined OH rate: Estimated Overheads/ Estimated labour cost *100 $ 1555,680 /926,000 *100 = 168% 1-b: Manufacturing OH cost applied Total Labour cost 21400 Pre-determined Oh rate 168% Manufacturing OH applied 35952 Req 2-a Cutting Machining Assembly Manufacturing OH 522000 938680 95000 Direct labour 302000 217000 407000 Deptt Oh rate based on labour cost 172.85% 432.57% 23.34% (OH/ Labour cost*100) 2-b: Cutting Machining Assembly Total Labour cost applied to job 6600 1800 13000 21400 OH rate 172.85% 432.57% 23.34% Manufacturing OH applied 11408.1 7786.26 3034.2 22229 Req 4: Bid price using Plantwide OH rate: Material 18500 Labour 21400 OH cost 35952 Total cost 75852 Add: Markup 150% of cost 113778 Bid price 189630 4-b: Bid price using Deptt OH rate: Material 18500 Labour 21400 OH cost 22229 Total cost 62129 Add: Markup 150% of cost 93194 Bid price 155323 Req 5-a Under/Over-applied OH: Cutting Machining Assembly Total Direct labour cost 318000 210000 340000 868000 Manufacturing OH Incurred 560000 830000 91000 1481000 OH rate 168% 168% 168% 168% manufacturing OH applied 534240 352800 571200 1458240 Under/(Over) applied OH 25760 477200 -480200 22760 5-b: Under/Over-applied OH: Cutting Machining Assembly Total Direct labour cost 318000 210000 340000 868000 Manufacturing OH Incurred 560000 830000 91000 1481000 OH rate 172.85% 432.57% 23.34% manufacturing OH applied 549663 908397 79356 1537416 Under/(Over) applied OH 10337 -78397 11644 -56416
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