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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