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 95,000 47,500 $266,000 $ 2.60 $ 5.20 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 $ 273 $ 237 15 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?

Answer 1

Ans. 1 a	Predetermined overhead rate = Total Estimated overhead cost / Estimated labor hours
		$513,000 / 95,000
		$5.40	per direct labor hour
	*Calculations:
	*Variable manufacturing overhead = Variable overhead cost per labor hour * Direct labor hours required
		$2.60 * 95,000
		$247,000
	*Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead
		$247,000 + $266,000
		$513,000
Ans. 1 b	Particulars	Amount
	Direct materials	$273.00
	Direct labor cost	$237.00
	Overhead applied	$81.00
	Total manufacturing cost	$591.00
	*Calculations:
	Overhead cost applied = Predetermined overhead rate * Actual direct labor hours
		$5.40 * 15
		$81
Ans. 1 c	Selling price = Total manufacturing cost * Markup percentage
	$591 * 200%
	$1,182
Ans. 2 a	Predetermined overhead rate = Total Estimated overhead cost / Estimated machine hours
		$513,000 / 47,500
		$10.80	per machine hour
	*Calculations:
	*Variable manufacturing overhead = Variable overhead cost per machine hour * Machine hours required
		$5.20 * 47,500
		$247,000
	*Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead
		$247,000 + $266,000
		$513,000
Ans. 2 b	Particulars	Amount
	Direct materials	$273.00
	Direct labor cost	$237.00
	Overhead applied	$54.00
	Total manufacturing cost	$564.00
	*Calculations:
	Overhead cost applied = Predetermined overhead rate * Actual machine hours
		$10.80 * 5
		$54
Ans. 2 c	Selling price = Total manufacturing cost * Markup percentage
	$564 * 200%
	$1,128