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"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $10,000 on the Hastings job." "I just can't figure it out," said Kovallas. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid anymore. What's happened?" Lenko Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The fol- lowing estimates were made at the beginning of the year: Direct labor. Manufacturing overhead... Department Machining Assembly Cutting $300,000 $200,000 $400,000 $540,000 $800,000 $100,000 Total Plant $900,000 $1,440,000 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows:

"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $10,000 on the Hastings job." "I just can't figure it out," said Kovallas. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid anymore. What's happened?" Lenko Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The fol- lowing estimates were made at the beginning of the year: Direct labor. Manufacturing overhead... Department Machining Assembly Cutting $300,000 $200,000 $400,000 $540,000 $800,000 $100,000 Total Plant $900,000 $1,440,000 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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2. Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions: a. Compute the rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. 3. Explain the difference between the manufacturing overhead that would have been applied to the Hastings job using the plantwide rate in question 1(b) and using the departmental rates in question 2(b). 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What was the company's bid price on the Hastings job? What would the bid price have been if departmental overhead rates had been used to apply overhead cost? 5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year: Direct materials... Direct labor. Manufacturing overhead. ************ Department Cutting Machining Assembly Total Plant $760,000 $90,000 $410,000 $1,260,000 $320,000 $210,000 $340,000 $870,000 $560,000 $830,000 $92,000 $1,482,000 Compute the underapplied or overapplied overhead for the year (a) assuming that a plantwide overhead rate is used, and (b) assuming that departmental overhead rates are used.
Transcribed Image Text:2. Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions: a. Compute the rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. 3. Explain the difference between the manufacturing overhead that would have been applied to the Hastings job using the plantwide rate in question 1(b) and using the departmental rates in question 2(b). 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What was the company's bid price on the Hastings job? What would the bid price have been if departmental overhead rates had been used to apply overhead cost? 5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year: Direct materials... Direct labor. Manufacturing overhead. ************ Department Cutting Machining Assembly Total Plant $760,000 $90,000 $410,000 $1,260,000 $320,000 $210,000 $340,000 $870,000 $560,000 $830,000 $92,000 $1,482,000 Compute the underapplied or overapplied overhead for the year (a) assuming that a plantwide overhead rate is used, and (b) assuming that departmental overhead rates are used.
"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $10,000 on the Hastings job." "I just can't figure it out," said Kovallas. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid anymore. What's happened?" Lenko Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The fol- lowing estimates were made at the beginning of the year: Direct labor.. Manufacturing overhead.. ********** Direct materials.......... Direct labor....... Manufacturing overhead... Department Machining Cutting Assembly $300,000 $200,000 $400,000 $540,000 $800,000 $100,000 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows: Cutting $12,000 $6,500 ? Department Machining Assembly $900 $1,700 ? Total Plant $900,000 $1,440,000 $5,600 $13,000 ? Total Plant $18,500 $21,200 ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming the use of a plantwide overhead rate: a. Compute the rate for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job.
Transcribed Image Text:"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $10,000 on the Hastings job." "I just can't figure it out," said Kovallas. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid anymore. What's happened?" Lenko Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The fol- lowing estimates were made at the beginning of the year: Direct labor.. Manufacturing overhead.. ********** Direct materials.......... Direct labor....... Manufacturing overhead... Department Machining Cutting Assembly $300,000 $200,000 $400,000 $540,000 $800,000 $100,000 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows: Cutting $12,000 $6,500 ? Department Machining Assembly $900 $1,700 ? Total Plant $900,000 $1,440,000 $5,600 $13,000 ? Total Plant $18,500 $21,200 ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. Required: 1. Assuming the use of a plantwide overhead rate: a. Compute the rate for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job.
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