Question

Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3] 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 Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour 80,000 40,000 $240,000 $1.80 $ 3.60 During the year, Job 550 was started and completed. The following information is available with respect to this job Direct materials Direct labor cost Direct labor-hours Machine-hours $ 207 $ 257 15 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 approachh 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.)

Answer 1

The total cost of each method of production would be $1,350. The firm should choose the method based on other factors such as ease of allocation and accuracy of cost allocation.

Step-by-step explanation:

To determine the total cost of each method of production, we need to multiply the cost of labor by the number of direct labor-hours required, and the cost of the machine by the number of machine-hours required.

For the first method, with direct labor-hours as the allocation base:

Total labor cost = Cost of labor per hour x Number of direct labor-hours = $40 x 15 = $600

Total machine cost = Cost of machine per hour x Number of machine-hours = $50 x 15 = $750

Total cost of production = Total labor cost + Total machine cost = $600 + $750 = $1,350

For the second method, with machine-hours as the allocation base:

Total labor cost = Cost of labor per hour x Number of direct labor-hours = $40 x 15 = $600

Total machine cost = Cost of machine per hour x Number of machine-hours = $50 x 15 = $750

Total cost of production = Total labor cost + Total machine cost = $600 + $750 = $1,350

Both methods result in the same total cost of production. The firm should choose the method based on other factors such as ease of allocation and accuracy of cost allocation.