Question

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

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.)

#### Homework Answers

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
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