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		95,000
Machine-hours required to support estimated production		47,500
Fixed manufacturing overhead cost	$	266,000
Variable manufacturing overhead cost per direct labor-hour	$	2.60
Variable manufacturing overhead cost per machine-hour	$	5.20

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

Direct materials	$	273
Direct labor cost	$	237
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.         a. The estimated total overhead cost is computed as follows:

Y = $266,000 + ($2.60 per DLH) (95,000 DLHs)

Estimated fixed manufacturing overhead.........................................	$ 266,000
Estimated variable manufacturing overhead: $2.60 per DLH × 95,000 DLH.................................................................................	247,000
Estimated total manufacturing overhead cost...................................	$513,000

      The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)....................	$513,000
Estimated total direct labor-hours (b)...............................	95,000	DLH
Predetermined overhead rate (a) ÷ (b)..............................	$5.40	per DLH

b. Total manufacturing cost assigned to Job 550:

Direct materials...................................................................................	$273
Direct labor.........................................................................................	237
Manufacturing overhead applied ($5.40 per DLH × 15 DLH)..........	81
Total manufacturing cost of Job 550...................................................	$591

c. The selling price for Job 550 is computed as follows:

	Job 550
Total manufacturing cost......................................................................	$   591
Markup (200%).....................................................................................	1,182
Selling price..........................................................................................	$1,773

2.         a. The estimated total overhead cost is computed as follows:

Y = $266,000 + ($5.20 per MH) (47,500 MHs)

Estimated fixed manufacturing overhead.........................................	$ 266,000
Estimated variable manufacturing overhead: $5.20 per MH × 47,500 MHs...................................................................................	247,000
Estimated total manufacturing overhead cost...................................	$513,000

      The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a)......................	$513,000
Estimated total machine-hours (b).....................................	47,500	MHs
Predetermined overhead rate (a) ÷ (b)...............................	$10.80	per MH

b. Total manufacturing cost assigned to Job 550:

Direct materials...................................................................................	$273
Direct labor.........................................................................................	237
Manufacturing overhead applied ($10.80 per MH × 5 MH)..............	54
Total manufacturing cost of Job 550...................................................	$564

c. The selling price for Job 550 is computed as follows:

	Job 550
Total manufacturing cost......................................................................	$ 564
Markup (200%).....................................................................................	1,128
Selling price..........................................................................................	$1,692