ACCT 5223 Case Study #2

Departmental Predetermined Overhead Rate: Fabricating Machining Assembly Manufacturing overhead $378,000 $432,000 $97,200 Direct Labor $216,000 $108,000 $324,000 Predetermined overhead rate 175% 400% 30% Predetermined overhead rate = Estimated total manufacturing overhead cost/Estimated total amount of the allocation base, i.e. direct labor cost. Koopers Job Cost Requirements – Departmental Predetermined Overhead Rate: Fabricating Machining Assembly Total Plant Direct Materials $4,600 $200 $3,000 $7,800 Direct Labor $6,000 $500 $7,800 $14,300 Manufacturing overhead $10,500 $2,000 $2,340 $14,840 In using the Departmental Predetermined Overhead Rate, the amount of manufacturing overhead cost applied to the Koopers Job would be $14,840. Koopers Job Bid Price – Departmental Predetermined Overhead Rate: Fabricating Machining Assembly Total Plant Direct Materials $4,600 $200 $3,000 $7,800 Direct Labor $6,000 $500 $7,800 $14,300 Manufacturing overhead $10,500 $2,000 $2,340 $14,840 Total Manufacturing Cost $36,940 Bid jobs at 150% of Total Manufacturing Cost 150% Bid Price $55,410 Based upon the assumption that the bid price is 150% of the total manufacturing cost and the amount of manufacturing overhead cost applied to Koopers Job, using a predetermined overhead rate should be able to provide a full picture and support Teledex on the price offer of job bidding. The plantwide predetermined overhead rate yields a higher potential profit while the departmental predetermined overhead rate could offer a lower bid price, so Teledex may consider to use departmental predetermined overhead rate to determine the bid price to yield a higher chance of winning.