Question:

"Blast it!" said David Wilson, president of Teledex Company.  "We've just lost the bid on the Koopers job by $2,000.  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                                $200,000            $100,000         $300,000         $600,000

Manufacturing overhead            $350,000            $400,000         $  90,000         $840,000            

 

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:

 

                                                                                    Department                                                     

                                                 ______________________________________________________________________

                                                   Fabricating     Machining        Assembly       Total Plant

 

Direct materials                             $3,000               $200               $1,400              $4,600

Direct labor                                   $2,800               $500               $6,200              $9,500       

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. Explain the difference between the manufacturing overhead that would have been applied to

    the Koopers job using the plantwide rate in question 1 (b) above and using the departmental

    rates in question 2 (b).

4. 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?  What would the bid price have been if departmental overhead rates had been

    used to apply overhead cost?

 

5. At the end of the year, the company assembled the following actual cost data relating to all

    jobs worked on during the year.

 

                                                                                     Department

                                                 _______________________________________________________________________

                                                  Fabricating     Machining        Assembly       Total Plant

 

Direct materials                         $190,000          $   16,000          $114,000         $320,000

Direct labor                               $210,000           $108,000          $262,000         $580,000

Manufacturing overhead           $360,000           $420,000          $  84,000         $864,000

 

   Compute the under- or overapplied overhead for the year (a) assuming that a plantwide

   overhead rate is used, and (b) assuming that departmental overhead rates are used.