Teledex Company manufactures products to customers’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year:   Fabricating Machining assembly Total plant Manufacturing overhead 350,000 400,000 90,000 840,000 Direct  Labor 200,000 100,000 300,000 600,000 Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows:   Fabricating Machining assembly Total plant Direct materials 3,000 200 1400 4600 Direct labor 2800 500 6200 9500 Manufacturing overhead         Using the company’s plantwide approach: Compute the plantwide predetermined rate for the current year. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: Compute the predetermined overhead rate for each department for the current year. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using the plantwide approach in question 1 (b) and using the departmental approach in question 2 (b). 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 Koopers job using a plantwide predetermined overhead rate? What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Teledex Company manufactures products to customers’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year:

 

Fabricating

Machining

assembly

Total plant

Manufacturing overhead

350,000

400,000

90,000

840,000

Direct  Labor

200,000

100,000

300,000

600,000

Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows:

 

Fabricating

Machining

assembly

Total plant

Direct materials

3,000

200

1400

4600

Direct labor

2800

500

6200

9500

Manufacturing overhead

 

 

 

 

  1. Using the company’s plantwide approach:
  2. Compute the plantwide predetermined rate for the current year.
  3. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
  4. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions:
  5. Compute the predetermined overhead rate for each department for the current year.
  6. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
  7. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using the plantwide approach in question 1 (b) and using the departmental approach in question 2 (b).
  8. 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 Koopers job using a plantwide predetermined overhead rate? What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?
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