Question

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

Answer 1

Part a)

Compute the predetermined overhead rate on the basis of labor hours using the equation as follows:

Overhead Rate = Variable overhead rate + Fixed overhead rate

Overhead Rate = $4.6 + $2.8

Overhead Rate = $7.40

Hence, the predetermined overhead rate is $7.40 per hour.

Working Note:

Compute the fixed overhead rate as per labor hour basis using the equation as follows:

Fixed overhead rate = Fixed manufacturing overhead cost / Labor hours required to support estimated production

Fixed overhead rate = $ 420,000 / 150,000

Fixed overhead rate = $ 2.8 per labor hour

Hence, the fixed overhead rate is $2.80 per labor hour.

Part b)

Compute the manufacturing cost of job 550 using the equation as follows:

Manufacturing cost = Direct materials + Direct labor + Manufacturing overheads

Manufacturing cost = $195 + $288 + $111

Manufacturing cost = $594

Hence, the total manufacturing cost is $594.

Working Note:

Compute the manufacturing overheads using the equation as follows:

Manufacturing Overheads = Predetermined rate × Labor hours

Manufacturing Overheads = $7.4 × 15

Manufacturing Overheads = $111

Hence, the manufacturing overheads are $111.

Part c)

Compute the selling price for Job 550 using the equation as follows:

Selling Price = Manufacturing Cost + 200% of Manufacturing cost

Selling Price = $594 + (200% × $594)

Selling Price = $594 + $1,188

Selling Price = $1,782

Hence, the selling price for Job 550 is $1,782.