Question

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3]

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		150,000
Machine-hours required to support estimated production		75,000
Fixed manufacturing overhead cost	$	420,000
Variable manufacturing overhead cost per direct labor-hour	$	4.60
Variable manufacturing overhead cost per machine-hour	$	9.20

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Direct materials	$	195
Direct labor cost	$	288
Direct labor-hours		15
Machine-hours		5

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.)

Answer 1

Answer:
1)
(a)
Plantwide Predetermined Overhead rate          = (Estimated Fixed Manf. Overhead Cost /Est. DLHs ) + Variable Manf. overhead Cost per DLH             =    ( $ $ 420,000 / $ 150,000 ) + $ 4.60             =      $ 2.8 + $ 4.60	$ 7.40 per DLH
(b)
Particulars	Amount (in $ )
Direct materials	$ 195
Direct labor Cost	$ 288
Overhead applied ( $ 7.40 x 15 DLHs )	$ 111
Total Manufacturing cost	$ 594
Add: Mark up @ 200%	$ 1,188
Selling Price for Job 550	$ 1,782
2)
(a)
Plantwide Predetermined Overhead rate          = (Estimated Fixed Manf. Overhead Cost /Est. MHs ) + Variable Manf. overhead Cost per MH             =    ( $ 420,000 / $ 75,000 ) + $ 9.20             =      $ 5.60 + $ 9.20	$ 14.80 per MH
(b)
Particulars	Amount (in $ )
Direct materials	$ 195
Direct labor Cost	$ 288
Overhead applied ( $ 14.80 x 5 MHs )	$ 74
Total Manufacturing cost	$ 557
Add: Mark up @ 200%	$ 1,114
Selling Price for Job 550	$ 1,671