Exercise 2-9

1. Plantwide predetermined overhead rate

Estimated total allocation base (machine-hours): 165 000

Estimated total manufacturing overhead cost: $2 310 000
Estimated fixed manufacturing overhead cost: $1 980 000
Estimated variable manufacturing overhead cost per machine-hour: $2
Estimated total variable manufacturing overhead cost: $330 000

Plantwide predetermined overhead rate: $2 310 000 / 165 000 = $14

2. Total manufacturing cost assigned to Job P90

Total manufacturing cost: $2 988

 Direct materials: $1 150
Direct labor cost: $830
Manufacturing overhead cost: $14 x 72 = $1008

3.A

Contribution margin approach:

Sales - Variable costs = Contribution Margin
Contribution Margin - Fixed Costs = Net Operating Income

Sales: $2 500
Direct Material $1 150
Direct Labor $830
Variable overhead $144 (2$ x 72 MH)

Contribution Margin: $376

If the fixed cost is lower than the contribution margin, they can still earn profit from
selling Job P90 for $2 500.

[Contribution margin contributes to the recovery of the fixed costs]

3.B If they operate at 100% capacity, the machine hours required to support their
production will become 330 000 MH

New plantwide predetermined overhead

Estimated total allocation base (machine-hours): 330 000
Estimated total manufacturing overhead cost: $2 640 000
Estimated fixed manufacturing overhead cost: $1 980 000
Estimated variable manufacturing overhead cost per machine-hour: $2
 Estimated total variable manufacturing overhead cost: $660 000
Plantwide predetermined overhead: $8 per MH
Total manufacturing cost: $2 556
Direct materials: $1 150
Direct labor cost: $830
Manufacturing overhead cost: $8 x 72 = $576

The total manufacturing cost will still be higher than the selling price.

Exercise 2-13
 1. Predetermined overhead rate for each department

Cutting:
Total fixed manufacturing overhead cost: $264 000
Total variable manufacturing overhead: $96 000
Variable manufacturing overhead per machine hour: $2
Total machine hours 48 000
Total manufacturing overhead cost: $360 000

Estimated total manufacturing overhead cost: $360 000

Estimated total allocation base: 48 000
Predetermined manufacturing overhead rate: $7.5 per MH

Finishing:
Total fixed manufacturing overhead cost: $366 000
Total variable manufacturing overhead: $120 000
Variable manufacturing overhead per machine hour: $4
Total direct labor-hours 30 000
Total manufacturing overhead cost: $486 000

Estimated total manufacturing overhead cost: $486 000

Estimated total allocation base: 30 000
Predetermined manufacturing overhead rate: $16.2 per DLH

2. Total manufacturing cost assigned to Job 203

 Direct material cost: $810
Direct labor cost: $468
Manufacturing overhead - Cutting: $600
Manufacturing overhead - Finishing: $324
Total Manufacturing Cost: $2202

3. Yes, because the variable manufacturing overhead per machine-hour would be

neglected.

Problem 2-19
1. Predetermined overhead rate in the Molding Department and the Painting Department.

Molding Department:
Allocation Base (Machine-hours): 70 000
Fixed manufacturing overhead cost: $497 000
Variable manufacturing overhead per MH: $1.50
Total variable manufacturing overhead: $105 000
Total Manufacturing Overhead Cost: $602 000
Predetermined Overhead Rate $8.6

Painting Department:
Allocation Base (labor-hours): 60 000
Fixed manufacturing overhead cost: $615 000
Variable manufacturing overhead per LH: $2
Total variable manufacturing overhead: $120 000
Total Manufacturing Overhead Cost: $735 000
Predetermined Overhead Rate: $12.25

2. Total overhead cost applied to Job 205

 Job 205:
Machine-hours consumed: 110
Predetermined Overhead Rate - Molding $8.6
Manufacturing Overhead - Molding: $946

Direct labor-hours consumed: 84

Predetermined Overhead Rate - Painting: $12.25
Manufacturing Overhead - Painting: $1029

Total manufacturing overhead cost: $1975

3. Total manufacturing cost recorded for Job 205. Unit product cost if the job contained 50
units.

Job 205:
Direct materials: $2102
Direct labor: $1995
Total manufacturing overhead: $1975
Total manufacturing cost: $6072
Units produced 50
Unit product cost $121.44

Problem 2-21
1. Manufacturing overhead cost for Job A and Job B if Mason Company uses a plantwide
predetermined overhead rate with DLH as the allocation base

Plantwide Predetermined Overhead Rate:

Allocation Base (direct labor-hour): 60 000
Manufacturing Overhead: $600 000
Predetermined Overhead Rate: $10 per DLH

Job A:
Allocation Base (direct labor-hour): 15
 Predetermined Overhead Rate: $10 per DLH
Total Manufacturing Overhead: $150

Job B:
Allocation Base (direct labor-hour): 9
Predetermined Overhead Rate: $10 per DLH
Total Manufacturing Overhead: $90

2. Manufacturing overhead cost for Job A and Job B using departmental predetermined
overhead rate

Machining:
Allocation Base (machine-hours): 50 000
Total Manufacturing Overhead: $500 000
Predetermined Overhead Rate: $10

Assembly:
Allocation Base (direct labor-hours): 50 000
Total Manufacturing Overhead: $100 000
Predetermined Overhead Rate: $2

Job A:
Total Manufacturing Overhead - Machining: $110
Total Manufacturing Overhead - Assembly: $20
Total Manufacturing Overhead: $130

Job B:
Total Manufacturing Overhead - Machining: $120
Total Manufacturing Overhead - Assembly: $10
Total Manufacturing Overhead: $130
 3. The pricing for Job A would be too high while the pricing for Job B would be too low

Case 2-22:

1. Plantwide approach
 Plantwide Predetermined Rate
Allocation Base (direct labor): $600 000
Total manufacturing overhead: $840 000
Predetermined Overhead Rate: $1.4 per $ of direct labor

Koopers Job
Allocation Base (direct labor): $9 500
Predetermined Overhead Rate: $1.4 per $ of direct labor
Total manufacturing overhead $13 300

2. Departmental Predetermined Overhead Rates Based on Direct Labor

Fabricating
Allocation Base (direct labor) $200 000
Total manufacturing overhead $350 000
Predetermined Overhead Rate $1.75 per $ of direct labor

Machining
Allocation Base (direct labor) $100 000
Total manufacturing overhead $400 000
Predetermined Overhead Rate $4 per $ of direct labor

Assembly
Allocation Base (direct labor) $300 000
Total Manufacturing Overhead $90 000
Predetermined Overhead Rate $0.3 per $ of direct labor

Koopers Job
Manufacturing overhead - fabricating $4 900
Manufacturing overhead - machining $2 000
Manufacturing overhead - assembly $1 860
 Total Manufacturing Overhead Cost $8 760
3. Lower manufacturing overhead cost in departmental predetermined overhead → Low
predetermined overhead rate for the assembly department → accounts to majority of
the direct labor
4. Bid price (150% of manufacturing cost)

Plantwide approach:
Direct materials $4 600
Direct labor $9 500
Manufacturing overhead $13 300
Total manufacturing cost $27 400
Bid price $41 100

Departmental approach:
Direct materials $4 600
Direct labor $9 500
Manufacturing overhead $8 760
Total manufacturing cost $22 860
Bid price $34 290

Exercise 2A-2
1. Traditional approach

Manufacturing overhead $576 000

Allocation Base (direct labor hours) 24 000
Predetermined Overhead Rate $24 per DLH

Rascon
Direct materials $260 000
Direct labor $120 000
Direct labor hours 8000
Applied Manufacturing Overhead $192 000
Total manufacturing cost $572 000
Unit product cost $28.6
 Parcel
Direct materials $1 760 000
Direct labor $240 000
Direct labor hours 16 000
Applied Manufacturing Overhead $384 000
Total manufacturing cost $2 384 000
Unit product cost $29.8
2. Activity-based absorption costing

Activity base (design time) 6 000

Manufacturing overhead $288 000
Predetermined activity rate $48 per design time

Allocation base (DLH) 24 000

Manufacturing overhead $288 000
Predetermined overhead rate $12 per DLH

Rascon
Direct materials $260 000
Direct labor $120 000
Direct labor hours 8000
Applied Manufacturing Overhead - trad $96 000
Applied Manufacturing Overhead - act $144 000
Total manufacturing cost $620 000
Unit product cost $31

Parcel
Direct materials $1 760 000
Direct labor $240 000
Direct labor hours 16 000
Applied Manufacturing Overhead - trad $192 000
 Applied Manufacturing Overhead - act $144 000
Total manufacturing cost $2 336 000
Unit product cost $29.2
3. The manufacturing overhead cost for Rascon increased → higher unit product cost,
while the manufacturing overhead cost for Parcel decreased → lower unit product cost