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 145,000
Machine-hours required to support estimated production 72,500
Fixed manufacturing overhead cost $406,000
Variable manufacturing overhead cost per direct labor-hour $4.40
Variable manufacturing overhead cost per machine-hour $8.80
During the year, Job 550 was started and completed. The following information is available with respect to this job:
Direct materials $195
Direct labor cost $288
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?

Answer 1

1a. $7.2 per DLH

1b. $591

1c.$1,773

2a. $14.4 per DLH

2b. $555

2c.$1,665

Step-by-step explanation:

1A. Computation of the plantwide predetermined overhead rate

Plantwide predetermined overhead rate=($406,000/145,000)+$4.40

Plantwide predetermined overhead rate=$2.8+$4.40

Plantwide predetermined overhead rate=$7.2 per DLH

Therefore the plantwide predetermined overhead rate will be $7.2 per DLH

1B. Computation of the total manufacturing cost of Job 550

Direct materials $195

Direct labor cost $288

Overhead $108

( 15*$7.2)

Total cost $591

Therefore the total manufacturing cost of Job 550 will be $591

1C. Calculation for what selling price would it establish for Job 550

Direct materials $195

Direct labor cost $288

Overhead $108

( 15*$7.2)

Total cost $591

Markup(200%) $1,182

(200%*$591)

Selling price $1,773

Therefore the selling price it would establish for Job 550 will be $1,773

2A. Computation of the plantwide predetermined overhead rate

Plantwide predetermined overhead rate=($406,000/72,500)+$8.80

Plantwide predetermined overhead rate=$5.6+$8.80

Plantwide predetermined overhead rate=$14.4 per DLH

Therefore the plantwide predetermined overhead rate will be $14.4 per DLH

1B. Computation of the total manufacturing cost of Job 550

Direct materials $195

Direct labor cost $288

Overhead $72

( 5*$14.4)

Total cost $555

Therefore the total manufacturing cost of Job 550 will be $555

1C. Calculation for what selling price would it establish for Job 550

Direct materials $195

Direct labor cost $288

Overhead $72

( 5*$14.4)

Total cost $555

Markup(200%) $1,110

(200%*$555)

Selling price $1,665

Therefore the selling price it would establish for Job 550 will be $1,665