Problem 4-57 Overhead Rates, Unit Costs Folsom Company manufactures specialty tools to customer order. There are three producing departments. Departmental information on budgeted overhead and various activity measures for the coming year is as follows: Welding Assembly Finishing Estimated overhead $220,000 $ 62,000 $150,000 Direct labor hours 4,500 10,000 6,000 Direct labor cost $ 90,000 $150,000 $120,000 Machine hours 5,000 1,000 2,000 Currently, overhead is applied on the basis of machine hours using a plantwide rate. However, Janine, the controller, has been wondering whether it might be worthwhile to use departmental overhead rates. She has analyzed the overhead costs and drivers for the various de- partments and decided that Welding and Finishing should base their overhead rates on machine hours and that Assembly should base its overhead rate on direct labor hours. Janine has been asked to prepare bids for two jobs with the following information: Job 1 Job 2 Direct materials $6,725 $9,340 Direct labor cost $1,800 $3,100 Direct labor hours: Welding Assembly Finishing Number of machine hours: 20 10 60 20 20 70 Welding Assembly Finishing 50 50 60 25 90 125 The typical bid price includes a 35% markup over full manufacturing cost. Round all overhead rates to the nearest cent. Round all bid prices to the nearest dollar. Required: 1. Calculate a plantwide rate for Folsom Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate departmental overhead rates for the producing departments. What is the bid price of each job using these rates?
Problem 4-57 Overhead Rates, Unit Costs Folsom Company manufactures specialty tools to customer order. There are three producing departments. Departmental information on budgeted overhead and various activity measures for the coming year is as follows: Welding Assembly Finishing Estimated overhead $220,000 $ 62,000 $150,000 Direct labor hours 4,500 10,000 6,000 Direct labor cost $ 90,000 $150,000 $120,000 Machine hours 5,000 1,000 2,000 Currently, overhead is applied on the basis of machine hours using a plantwide rate. However, Janine, the controller, has been wondering whether it might be worthwhile to use departmental overhead rates. She has analyzed the overhead costs and drivers for the various de- partments and decided that Welding and Finishing should base their overhead rates on machine hours and that Assembly should base its overhead rate on direct labor hours. Janine has been asked to prepare bids for two jobs with the following information: Job 1 Job 2 Direct materials $6,725 $9,340 Direct labor cost $1,800 $3,100 Direct labor hours: Welding Assembly Finishing Number of machine hours: 20 10 60 20 20 70 Welding Assembly Finishing 50 50 60 25 90 125 The typical bid price includes a 35% markup over full manufacturing cost. Round all overhead rates to the nearest cent. Round all bid prices to the nearest dollar. Required: 1. Calculate a plantwide rate for Folsom Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate departmental overhead rates for the producing departments. What is the bid price of each job using these rates?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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OBJECTIVE
Problem 4-57 Overhead Rates, Unit Costs
al r
an
Folsom Company manufactures specialty tools to customer order. There are three producing
departments. Departmental information on budgeted overhead and various activity measures
for the coming year is as follows:
EXCEL
Welding
Assembly
Finishing
Estimated overhead
$220,000
$ 62,000
$150,000
Direct labor hours
Direct labor cost
4,500
10,000
6,000
$ 90,000
$150,000
$120,000
Machine hours
5,000
1,000
2,000
Currently, overhead is applied on the basis of machine hours using a plantwide rate.
However, Janine, the controller, has been wondering whether it might be worthwhile to use
departmental overhead rates. She has analyzed the overhead costs and drivers for the various de-
partments and decided that Welding and Finishing should base their overhead rates on machine
hours and that Assembly should base its overhead rate on direct labor hours.
Janine has been asked to prepare bids for two jobs with the following information:
Job 1
Job 2
Direct materials
$6,725
$9,340
Direct labor cost
$1,800
$3,100
Direct labor hours:
Welding
Assembly
Finishing
20
10
60
20
20
70
Number of machine hours:
Welding
Assembly
Finishing
50
50
60
25
90
125
The typical bid price includes a 35% markup over full manufacturing cost. Round all overhead
rates to the nearest cent. Round all bid prices to the nearest dollar.
Required:
1. Calculate a plantwide rate for Folsom Company based on machine hours. What is the bid
price of each job using this rate?
2. Calculate departmental overhead rates for the producing departments. What is the bid
price of each job using these rates?
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