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"Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. “I’m afraid so," replied Doug Martin, the operations vice president. "One of our competitors underbid us by about $9,800 on the Hastings job." "I just can’t figure it out," said Kovallas. "It seems we’re either too high to get the job or too low to make any money on half the jobs we bid anymore. What’s happened?"

Lenko Products manufactures specialized goods 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        

Cutting                 Machining          Assembly            Total Plant

  Direct labor                       $316,000              $202,000              $411,000              $929,000  

  Manufacturing overhead$539,000          $870,690              $86,000                 $1,495,690

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

                                                                                                Department      

                                                Cutting                 Machining          Assembly            Total plant

  Direct materials              $12,100                 $1,000                   $5,700                   $18,800  

  Direct labor                       $6,500                   $1,800                   $12,900                 $21,200  

  Manufacturing overhead           ?                              ?                             ?                              ?

The company uses a plant wide overhead rate to apply manufacturing overhead cost to jobs. 

Required:

1.            Assuming the use of a plant wide 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 Hastings job

2.            Suppose that instead of using a plant wide 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 Hastings job.

3.            Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost

a.            What was the company's bid price on the Hastings job if 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?

4.            At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year:

                                                                                Department        

                                                Cutting                 Machining          Assembly            Total plant

  Direct materials              $761,000              $90,000                 $409,000              $1,260,000  

  Direct labor                      320,000                  210,000                 341,000                871,000  

  Manufacturing overhead$560,000          $831,000              $91,000                 $1,482,000

a.            Compute the under applied or over applied overhead for the year, assuming that a plant wide overhead rate is used.

b.            Compute the under applied or over applied overhead for the year, assuming that departmental overhead rates are used.

Cutting                  

Machining                              

 Assembly                              

 Total Plant            

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