Scribd
Upload
26 views

Problem 2

1. The document provides calculations for estimated overhead costs, predetermined overhead rates, manufacturing costs assigned to jobs, and selling prices for jobs using different allocation bases. 2. It first calculates overhead costs as $1,064,000 using direct labor hours (DLH) as the allocation base, then recalculates using machine hours (MH) as $1,064,000. Job 550 costs $514 using DLH and $476 using MH. 3. It concludes that if DLH is used, jobs that are labor intensive will be overpriced, potentially causing the company to lose bids if competitors use a more accurate costing system like MH.

Uploaded by

Mohammed Al Armali
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
26 views

Problem 2

1. The document provides calculations for estimated overhead costs, predetermined overhead rates, manufacturing costs assigned to jobs, and selling prices for jobs using different allocation bases. 2. It first calculates overhead costs as $1,064,000 using direct labor hours (DLH) as the allocation base, then recalculates using machine hours (MH) as $1,064,000. Job 550 costs $514 using DLH and $476 using MH. 3. It concludes that if DLH is used, jobs that are labor intensive will be overpriced, potentially causing the company to lose bids if competitors use a more accurate costing system like MH.

Uploaded by

Mohammed Al Armali
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Problem 2-16 (30 minutes)

1a. The estimated total overhead cost is computed as follows:


Y = $784,000 + ($2.00 per DLH) (140,000 DLHs)

Estimated fixed manufacturing overhead................... $   784,000


Estimated variable manufacturing overhead: $2.00
per DLH × 140,000 DLH........................................     280,000
Estimated total manufacturing overhead cost............ $1,064,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a). . $1,064,000


Estimated total direct labor-hours (b)............ 140,000 DLH
Predetermined overhead rate (a) ÷ (b).......... $7.60 per DLH

1b. Total manufacturing cost assigned to Job 550:


Direct materials....................................................... $175
Direct labor............................................................. 225
Manufacturing overhead applied ($7.60 per DLH ×
15 DLH)................................................................ 114
Total manufacturing cost of Job 550......................... $514

1c. The selling price for Job 550 is computed as follows:


Job 550
Total manufacturing cost.......................................... $   514
Markup (200%).......................................................  1,028
Selling price............................................................. $1,542
Problem 2-16 (continued)

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


Y = $784,000 + ($4.00 per MH)(70,000 MHs)

Estimated fixed manufacturing overhead................... $   784,000


Estimated variable manufacturing overhead: $4.00
per MH × 70,000 MHs...........................................     280,000
Estimated total manufacturing overhead cost............ $1,064,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead (a). . $1,064,000


Estimated total machine-hours (b)................ 70,000 MHs
Predetermined overhead rate (a) ÷ (b).......... $15.20 per MH

2b. Total manufacturing cost assigned to Job 550:


Direct materials....................................................... $175
Direct labor............................................................. 225
Manufacturing overhead applied ($15.20 per MH × 5
MH)......................................................................    76
Total manufacturing cost of Job 550......................... $476

2c. The selling price for Job 550 is computed as follows:


Job 550
Total manufacturing cost.......................................... $   476
Markup (200%).......................................................    952
Selling price............................................................. $1,428

3. The price for Job 550 using direct labor-hours as the allocation
base ($1,542) is $114 higher than the price derived using
machine-hours as the allocation base ($1,428). If machine-hours
is the better choice for an allocation base, then if Landen
continues to use direct labor-hours as its overhead allocation base,
it will overprice jobs that are intensive users of direct labor-hours
and non-intensive users of machine-hours. In a bidding situation,
Landen will tend to lose bids on jobs such as Job 550 if its
competitors have more accurate cost accounting systems.
Problem 2-18 (15 minutes)

1. The estimated total overhead cost is computed as follows:


Y = $350,000 + ($1.00 per DLH)(20,000 DLHs)

Estimated fixed overhead......................................... $350,000


Estimated variable overhead: $1.00 per DLH ×
20,000 DLHs.........................................................    20,000
Estimated total overhead cost................................... $370,000

The predetermined overhead rate is computed as follows:

Estimated total overhead (a)......................... $370,000


Estimated total direct labor-hours (b)............ 20,000 DLHs
Predetermined overhead rate (a) ÷ (b).......... $18.50 per DLH

2. Total manufacturing cost assigned to Mr. Wilkes:


Direct materials....................................................... $590
Direct labor............................................................. 109
Overhead applied ($18.50 per DLH × 6 DLH)............  111
Total cost assigned to Mr. Wilkes.............................. $810

3. The price charged to Mr. Wilkes is computed as follows:


Job Wilkes
Total manufacturing cost.......................................... $   810
Markup (40%).........................................................     324
Selling price............................................................. $1,134

You might also like