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 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 80,000 40,000 $240.000 $ 1.80 $ 3.60 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 $ 207 $ 257 15 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.) < Prev 5 of 8 Next >

Answer 1

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Landen Corporation
Answer 1
Answer 1 a
Calculation of Predetermined OH Rate	Amount $	Note
Labor Hours	80,000.00	A
Estimated fixed manufacturing Overhead	240,000.00	B
Predetermined OH Rate	3.00	C=B/A
Answer 1 b
Workings
Overhead applied to Job 550	Amount $	Note
Labor Hours	15.00	D
Predetermined OH Rate- fixed	3.00	See C
Variable overhead rate	1.80	E
Total overhead rate	4.80	F=E+C
Overhead applied to Job 550	72.00	G=D*F
Machine Hours	5.00	H
Variable overhead rate	3.60	I
Overhead applied to Job 550	18.00	J=H*I
Total Overhead applied to Job 550	90.00	K=G+J
Manufacturing cost of Job 550	Amount $	Note
Direct materials	207.00
Direct Labor	257.00
Total Overhead applied to Job 550	90.00	See K
Manufacturing cost of Job 550	554.00	L
Answer 1 c
Selling price of Job 550	Amount $
Manufacturing cost of Job 550	554.00	See L
Mark up at 200%	1,108.00	M=L*200%
Selling price of Job 550	1,662.00	N=L+M
Answer 2
Answer 2 a
Calculation of Predetermined OH Rate	Amount $	Note
Machine Hours	40,000.00	O
Estimated fixed manufacturing Overhead	240,000.00	See B
Predetermined OH Rate	6.00	Q=B/O
Answer 2 b
Workings
Overhead applied to Job 550	Amount $	Note
Machine Hours	5.00	See H
Predetermined OH Rate- fixed	6.00	See Q
Variable overhead rate	3.60	See I
Total overhead rate	9.60	R=Q+I
Overhead applied to Job 550	48.00	S=H*R
Labor Hours	15.00	See D
Variable overhead rate	1.80	See E
Overhead applied to Job 550	27.00	T=D*E
Total Overhead applied to Job 550	75.00	U=S+T
Manufacturing cost of Job 550	Amount $	Note
Direct materials	207.00
Direct Labor	257.00
Total Overhead applied to Job 550	75.00	See U
Manufacturing cost of Job 550	539.00	V
Answer 2 c
Selling price of Job 550	Amount $
Manufacturing cost of Job 550	539.00	See V
Mark up at 200%	1,078.00	W=V*200%
Selling price of Job 550	1,617.00	X=V+W