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 | 110,000 | |
| Machine-hours required to support estimated production | 55,000 | |
| Fixed manufacturing overhead cost | $ | 308,000 |
| Variable manufacturing overhead cost per direct labor-hour | $ | 3.20 |
| Variable manufacturing overhead cost per machine-hour | $ | 6.40 |
During the year, Job 550 was started and completed. The following information is available with respect to this job:
| Direct materials | $ | 187 |
| Direct labor cost | $ | 370 |
| 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.)
1.
a.
The estimated total overhead cost is computed as follows:
Y = $308,000 + ($3.20 per DLH)(110,000 DLHs)
| Estimated fixed manufacturing overhead | $ | 308,000 | |
Estimated variable manufacturing overhead:
$3.20 per DLH × 110,000 DLH
| 352,000 | ||
| Estimated total manufacturing overhead cost | $ | 660,000 | |
The predetermined overhead rate is computed as follows:
| Estimated total manufacturing overhead (a) | $ | 660,000 | |
| Estimated total direct labor-hours (b) | 110,000 | DLH | |
| Predetermined overhead rate (a) ÷ (b) | $ | 6.00 | per DLH |
b.
Total manufacturing cost assigned to Job 550:
| Direct materials | $ | 187 | |
| Direct labor | 370 | ||
Manufacturing overhead applied
($6.00 per DLH × 15 DLH)
| 90 | ||
| Total manufacturing cost of Job 550 | $ | 647 | |
c.
The selling price for Job 550 is computed as follows:
| Job 550 | |||
| Total manufacturing cost | $ | 647 | |
| Markup (200%) | 1,294 | ||
| Selling price | $ | 1,941 | |
2.
a.
The estimated total overhead cost is computed as follows:
Y = $308,000 + ($6.40 per MH)(55,000 MHs)
| Estimated fixed manufacturing overhead | $ | 308,000 | |
Estimated variable manufacturing overhead:
$6.40 per MH × 55,000 MHs
| 352,000 | ||
| Estimated total manufacturing overhead cost | $ | 660,000 | |
The predetermined overhead rate is computed as follows:
| Estimated total manufacturing overhead (a) | $ | 660,000 | |
| Estimated total machine-hours (b) | 55,000 | MHs | |
| Predetermined overhead rate (a) ÷ (b) | $ | 12.00 | per MH |
b.
Total manufacturing cost assigned to Job 550:
| Direct materials | $ | 187 | |
| Direct labor | 370 | ||
Manufacturing overhead applied
($12.00 per MH × 5 MH)
| 60 | ||
| Total manufacturing cost of Job 550 | $ | 617 | |
2.
c.
The selling price for Job 550 is computed as follows:
| Job 550 | |||
| Total manufacturing cost | $ | 617 | |
| Markup (200%) | 1,234 | ||
| Selling price | $ | 1,851 | |
