Question

"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 $10,100 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	$	311,000			$	209,000			$	405,000			$	925,000
Manufacturing overhead	$	525,000			$	871,000			$	84,000			$	1,480,000

    
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	$	12,000			$	800			$	5,500			$	18,300
Direct labor	$	6,500			$	1,800			$	13,000			$	21,300
Manufacturing overhead		?				?				?				?

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

Required:

1. Assuming the 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 Hastings job.

Answer 1

1		Cutting	Machining	Assembly
	Direct labor cost	311000	209000	405000	925000
	Manufacturing overheads	525000	871000	84000	1480000
	Plantwide overhead rate	1.69	4.17	0.21	1.6
2	Hasting job
		Cutting	Machining	Assembly	Total plant
	Direct labor cost	6500	1800	13000	21300
	Plantwide overhead rate	1.69	4.17	0.21	1.6
	Manufacturing overheads	10985	7506	2730	34080
	Manufacturing overheads would have been applied	21221