Chapter 2, Problem 16P

Plantwide Predetermined Overhead Rates; Pricing
Landen Corporation uses ajob-order costing system. At the beginning of the year, the company made the following estimates:

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Required:
1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Underthis approach:
a. Compute the plantwide predetermined overhead rate
b. Compute the total manufacturing cost of Job 550.
c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?
2. Assume that Landen’s controller believes that machine-hours isa better allocation base than direct labor-hours. Under this approach:
a. Compute the plantwide predetermined overhead rate.
b. Compute the total manufacturing cost of Job 550.
c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?
3. Assume that Landen’s controller is right about machine-hours being a more accurate overhead cost allocation base than direct labor-hours. If the company continues to use direct labor-hours as its only overhead cost allocation base what implications does this have forpricing jobs such as Job 550?