Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases Its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. 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, $ 2.00 $ 4.00 Direct labor-hours Machine-hours Total fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Department Cutting Finishing 6,000 30,000 48,00 5, $ 264,00 $ 366,000 $ 2.00 - - $ 4.00 During the year, Job 550 was started and completed. The following Information is available with respect to this job: Direct materials Direct labor cost Direct labor-hours Machine-hours $ 175 $ 225 15 Required: 1. Compute the predetermined overhead rate for each department. 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: Department Cutting Finishing 2e 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 Direct labor-hours Machine-hours Direct materials Direct labor cost $ see $ 108 $ 310 $360 550? Using the predetermined overhead rates that you computed In requirement (1), compute the total manufacturing cost assigned to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates? 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.) Complete the question by entering your answers in the tabs given below. Required 1 Required 2 Required 3 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.) per DLH Total manufacturing cost 1. Direct labor-hours: a. 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

1.

Direct labor hours:

a. Predetermined overhead rate = $784,000+$280,000 (140,000*$2) / 140,000 = $7.6 per direct labor hour

b. Total manufacturing cost of Job 550 = Direct material + Direct labor + Overhead applied

Total manufacturing cost of Job 550 = $175 + 225 + 114 (15*$7.6) = $514

c. Selling price = $514 + 200% = $1,542

2.

Machine hours:

a. Predetermined overhead rate = $784,000+280,000 (70,000*$4) / 70,000 = $15.2 per machine hour

b. Total manufacturing cost of Job 550 = $175 + 225 + 76 (5*$15.2) = $476

c. Selling price = $476 + 200% = $1,428