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 Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour 140,000 70,000 $784,000 $ 2.00 $ 4.00 During the year, Job 550 was started and completed. The following information is available with respect to this job: $ 175 $ 225 Direct materials Direct labor cost Direct labor-hours Machine-hours 15 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? (Round your intermediate calculations to 2 decimal places. Round your "Predetermined Overhead Rate" answers to 2 decimal places and all other answers to the nearest whole dollar.) per DLH 1. Direct labor-hours: Predetermined overhead rate b. Total manufacturing cost of Job 550 c. Selling price 2. Machine-hours: a. Predetermined overhead rate b. Total manufacturing cost of Job 550 c. Selling price per MH

Answer 1

The correct answers are:

1)

a) $7.60 per DLH

b) $514

c) $1,542

2)

a) $15.20 per DLH

b) $476

c) $1,428

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Workings

Part 1

a) Predetermine Overhead Rate = Total Manufacturing OH/Total Direct labor hours = 1,064,000/140000= $7.6

Total manufacturing OH = Fixed OH + variable OH = 784000+(2*140000) = 784000+280000 = $1,064,000

b) Total Manufacturing Cost = Direct material + Direct labor + Manufacturing OH = 175+225+(15*7.6) = 175+225+114 = $514

c) Mark up percentage = 200%

Selling price = Cost*(1+mark up %) = 514*(1+200%) = $1,542

Part 2

a) Predetermine Overhead Rate = Total Manufacturing OH/Total Direct machine hours = 1,064,000/70000= $15.2

Total manufacturing OH = Fixed OH + variable OH = 784000+(4*70000) = 784000+280000 = $1,064,000

b) Total Manufacturing Cost = Direct material + Direct labor + Manufacturing OH = 175+225+(5*15.2) = 175+225+76 = $476

c) Mark up percentage = 200%

Selling price = Cost*(1+mark up %) = 476*(1+200%) = $1,428