Question

Computing Pre-determined Overhead Rates and Job Costs [LO2-1, LO2-2, LO2-3]

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:
Machine-hours required to support estimated production 159,000
Fixed manufacturing overhead cost $651,000
Variable manufacturing overhead cost per machine-hour $4.60
Required:
1. Compute the plantwide predetermined overhead rate.
2. During the year, Job 400 was started and completed. The following information was available with respect to this job:
Direct materials $370
Direct labor cost $300
Machine-hours used 34
Compute the total manufacturing cost assigned to Job 400.
3. If Job 400 includes 60 units, what is the unit product cost for this job?
4. If Moody uses a markup percentage of 120% of its total manufacturing cost, then what selling price per unit would it have established for Job 400?
5. If Moody hired you as a consultant to critique its pricing methodology, what would you say?

Answer 1

Answer and Explanation:

1. The computation of plantwide predetermined overhead rate is shown below:-

(Fixed manufacturing overhead cost ÷ Machine-hours) + Variable manufacturing overhead cost per machine-hour

= ($651,000 ÷ 159,000) + $4.60

= $8.69

2. The total manufacturing cost assigned to Job 400 is shown below:-

Total manufacturing cost assigned to Job 400 = Direct material + Direct labor + Manufacturing overhead

= $370 + $300 + (34 × $8.69)

= $370 + $300 + $295.46

= $965.46

3. The unit product cost is shown below:-

Unit product cost = Total manufacturing cost assigned to Job 400 ÷ Number of units

= $965.46 ÷ 60

= $16

4. The selling price per unit is shown below:-

Selling price per unit = Unit product cost + (Unit product cost × markup percentage)

= $16 + ($16 × 120%)

= $16 + $19.2

= $35.2 per unit

5. As the absorption costing method is chosen so it also considered the fixed also it fails to generate the good analysis for variable costing