"Blast it!" said David Wilson, president of Teledex Company. "We’ve just lost the bid on the Koopers job by $3,000. It seems we’re either too high to get the job or too low to make any money on half the jobs we bid."
Teledex Company manufactures products 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 following estimates were made at the beginning of the year:
Department
Fabricating Machining Assembly Total Plant
Direct labor $ 209,000 104,500 313,500 627,000 Manufacturing-
overhead $ 365,750 418,000 94,050 877,800
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:
Department
Fabricating Machining Assembly Total Plant
Direct materials $ 3,900 200 2,300 6,400
Direct labor $ 4,600 500 7,100 12,200
Manufacturing overhead ? ? ? ?
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
Required:
(1) Assuming 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 Koopers job.
(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 Koopers job.
(3) Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).
(a) What was the company's bid price on the Koopers job if a plantwide overhead rate had been used to apply overhead cost?
(b) What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
