\"Blast it!\" said David Wilson, president of Teledex Company. \"We\'ve just los

Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $2,000. 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: Department Direct labor Manufacturing overhead Fabricating Machining AssemblyTotal Plant $208,000 $104,000 $312,000$ 624,000 364,000 $416,000 $ 93,600 873,600 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: Department Direct materials Direct labor Manufacturing overhead Fabricating Machining Assembly Total Plant $ 3,800 $ 400 $ 2,200 $ 6,400 4,400 700 7,000 12,100 The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

Explanation / Answer

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Department wide overheads rate Fabricating Machining Assembly Total Manufacturing Overheads 364000 416000 93600 873600 Labour Cost 208000 104000 312000 624000 Overhead rate based on labour c ost 175% 400% 30% 140% (Manufacturing OH / Labour cost *100) Pre-determined overheads rate Ffabricating 175% of labour cost machining 400% of labour cost Assembly 30% of labour cost Note: Pre-determined OH rate has also been computed above as 140% of direct labour cost. Req A: Total Labour cost incurred: $ 604,000 Overheads actually incurred: $ 892,700 Under/Over-aplplied overheads: Overheads actually incurred 892700 Less: Overheads applied (604,000*140%) 845600 Under-applied overheads 47100 Under-applied overheads $47,100 Req B: Fabricating Machining Assembly Total Manufacturing Overheads Incurred 373000 434000 85700 892700 Labour Cost 218000 116000 270000 604000 Overhead rate based on labour c ost 175% 400% 30% 140% manufacturing Overheads applied 381500 464000 81000 926500 (Labour cost*OH rate) Under/ (Over)-aplied overheads -8500 -30000 4700 -33800 Fabricating Overapplied ($8,500) Machining Overapplied ($30,000) Assembly Underapplied $4,700 Ttotal plant Overapplied ($33,800)

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