Question

# "Don't tell me we've lost another bid!" exclaimed Sandy Kovallas, president of Lenko Products, Inc. "I'm...

"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.

 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

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