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 155,000 77,500 $465,000 $ 4.80 $ 9.60 During the year, Job 550 was started and completed. The following information is available with respect to this job: $ 210 $ 349 Direct materials Direct labor cost Direct labor-hours Machine-hours 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?

Answer 1

Answer:-

1) Predetermined Overhead rate with direct labor-hours as the allocation base:-

a) Plantwide Predetermined overhead rate= (Variable manufacturing overhead cost + fixed Manufacturing overhead cost )/Direct labor-hours

Fixed manufacturing overhead cost = $ 465,000

Variable Manufacturing Overhead cost = Variable manufacturing overhead cost per direct labor-hour × Direct Labor-hours

Variable manufacturing overhead cost per direct labor-hour = $ 4.80

Direct labor-hours = 155,000 hours

Variable Manufacturing Overhead cost = $4.80 × 155,000 hours

Variable Manufacturing Overhead cost = $744,000

Plantwide Predetermined Overhead rate = ( $465,000 + $744,000 ) / 155,000

Plantwide Predetermined Overhead rate = $7.8

1)b)Total manufacturing cost assigned to Job 550:

Direct materials	$210
Direct labor	$349
Manufacturing overhead applied(Note -1)	$117
Total manufacturing cost of Job 550	$676

Direct Material and Direct Labor are given in question.

Note 1:-

Manufacturing Overhead applied = Predetermined Overhead rate × Direct Labor-hours

Predetermined Overhead rate = $7.8

Direct Labor hours = 15 hours

Manufacturing Overhead applied = $7.8 × 15 hours

Manufacturing Overhead applied = $117

1)c) The selling price for Job 550 as follows:

Total manufacturing cost of Job 550 = $ 676
Markup = 200% of its total manufacturing cost

Markup = 200% × $676 = $1,352
Selling price = Total manufacturing cost of Job 550 + Markup

Selling price = $ 1,352 + $676

Selling price = $2,028

2. Landen's controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach:

2)a) Plantwide Predetermined overhead rate= (Variable manufacturing overhead cost + fixed Manufacturing overhead cost )/ Machine hours

Fixed manufacturing overhead cost = $ 465,000

Variable Manufacturing Overhead cost = Variable manufacturing overhead cost per Machine hours × Machine hours

Variable manufacturing overhead cost per direct labor-hour = $ 9.60

Machine Hours = 77,500 hours

Variable Manufacturing Overhead cost = $9.60 × 77,500 hours

Variable Manufacturing Overhead cost = $744,000

Plantwide Predetermined Overhead rate = ( $465,000 + $744,000 ) / 77,500

Plantwide Predetermined Overhead rate = $15.60

2)b)Total manufacturing cost assigned to Job 550:

Direct materials	$210
Direct labor	$349
Manufacturing overhead applied(Note -1)	$78
Total manufacturing cost of Job 550	$637

Direct Material and Direct Labor are given in question.

Note 1:-

Manufacturing Overhead applied = Predetermined Overhead rate × Machine hours

Predetermined Overhead rate = $15.60

Machine Hours = 5 hours

Manufacturing Overhead applied = $15. 60 × 5 hours

Manufacturing Overhead applied = $78

2)c) The selling price for Job 550 as follows:

Total manufacturing cost of Job 550 = $ 637
Markup = 200% of its total manufacturing cost

Markup = 200% × $637 = $1,274
Selling price = Total manufacturing cost of Job 550 + Markup

Selling price = $1,274 + $637

Selling price = $ 1,911