Question

“Blast it!" said David Wilson, president of Teledex Company. “We've just lost the bid on the Koopers job by $3,000. 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 $ 201,000 $ 351,750 Machining $100,500 $ 402,000 Assembly $ 301,500 $ 90,450 Total Plant $ 603,000 $ 844,200 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 $ 3,100 $ 300 $ 1,500 $ 4,900 $ 3,000 $ 600 $ 6,300 $ 9,900 ? ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming use of a plantwide overhead rate: a. Compute the rate for the current year. Predetermined overhead rate of direct labor cost

Answer 1

	Fabricating	Machining	Assembly	Total Plant
Direct Labor	201000	100500	301500	603000
Manufacturing Overhead	351750	402000	90450	844200
Overhead Rate	175%	400%	30%	140%
a.Platwide predetermined rate	140%	of Direct labor cost
Overhead applied	816,200
Actual Overhead	867,000
Underapplied	50,800
	Overhead applied	Actual Overhead	Difference
Fabricating	369,250	361,000	8,250	Overapplied
Machining	436,000	421,000	15,000	Overapplied
Assembly	78,900	85,000	(6,100)	Under applied
Total Plant	884,150	867,000	17,150	Overapplied

B Fabricating 201000 351750 -R =B3/B2 /D Machining 100500 402000 =C3/C2 DE Assembly Total Plant 301500 =B2+C2+D2 90450 =B3+C3+D3 =D3/D2 =E3/E2 1.4 of Direct labor cost А 1 2 Direct Labor 3 Manufacturing Overhead 4 Overhead Rate 5 6 a.Platwide predetermined rate 7 8 Overhead applied 9 Actual Overhead 10 Underapplied 11. 12 13 Fabricating 14 Machining 15 Assembly 16 Total Plant =583000*140% 867000 =B9-B8 Overhead applied Actual Overhead = 211000*B4 361000 = 109000*C4 421000 = 263000*D4 85000 =SUM(B13:B15) =SUM(C13:C15) Difference =B13-C13 Overapplied =B14-C14 Overapplied =B15-C15 Under applied =B16-C16 Overapplied