Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

Direct labor-hours required to support estimated production		135,000
Machine-hours required to support estimated production		67,500
Fixed manufacturing overhead cost	$	378,000
Variable manufacturing overhead cost per direct labor-hour	$	4.20
Variable manufacturing overhead cost per machine-hour	$	8.40

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

Direct materials	$	196
Direct labor cost	$	238
Direct labor-hours		15
Machine-hours		5

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. 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?

2. Assume that Landen’s controller believes that machine-hours is a 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?

(Round your intermediate calculations to 2 decimal places. Round your Predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.)

Answer 1

1. Direct labor hours
a
Predetermined overhead rate	7.00	per DLH	=4.20+(378000/135000)
b
Direct materials	196
Direct labor cost	238
Overhead applied	105		=15*7
Total manufacturing cost of Job 550	539
c
Total manufacturing cost	539
Add: Markup @ 200%	1078
Selling price	1617
2. Machine hours
a
Predetermined overhead rate	14.00	per MH	=8.40+(378000/67500)
b
Direct materials	196
Direct labor cost	238
Overhead applied	70		=5*14
Total manufacturing cost of Job 550	504
c
Total manufacturing cost	504
Add: Markup @ 200%	1008
Selling price	1512