Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay ither a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost lus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done nder fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts. he controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected ne relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1 nd client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus ontracts. Manufacturing overhead for year 3 is estimated to be $12 million. Other budgeted data for year 3 include: Client 1 3,000 $ 3,000 Client 3 7,000 $ 3,000 Machine-hours (thousands) Direct labor cost ($000) equired: . Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. . Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay ither a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost lus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done nder fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts. he controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected ne relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1 nd client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus ontracts. Manufacturing overhead for year 3 is estimated to be $12 million. Other budgeted data for year 3 include: Client 1 3,000 $ 3,000 Client 3 7,000 $ 3,000 Machine-hours (thousands) Direct labor cost ($000) equired: . Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. . Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay
either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost
plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done
under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts.
The controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected
the relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1
and client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus
contracts.
Manufacturing overhead for year 3 is estimated to be $12 million. Other budgeted data for year 3 include:
Client 1
3,000
$ 3,000
Client 3
7,000
$ 3,000
Machine-hours (thousands)
Direct labor cost ($000)
Required:
a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead.
b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. (Round your
answer to 2 decimal places.)
Application rate
per machine hour
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
Application rate
% of direct labor cost
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