# “Blast it” Said David Wilson, President of Teledex Company. “We’ve just lost the bid on the Koopers job by \$2,000.

“Blast it” Said David Wilson, President of Teledex Company. “We’ve just lost the bid on the Koopers job by \$2,000. It seems we’re either too high to get the job or too low to make any money on half the jobs we bid”.

Teledex Company manufactures products to customers’ specification and operates a job order system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made were made at the beginning of the year:

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“Blast it” Said David Wilson, President of Teledex Company. “We’ve just lost the bid on the Koopers job by \$2,000.
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Department

Fabrication Machining Assembly Total Plant

Direct Labor \$200,000 \$100,000 \$300,000 \$600,000

\$350,000 \$400,000 \$90,000 \$840,000

Jobs require varying amounts of work in the three departments. The Koopers job for example, would have required manufacturing costs in the three departments as follows:

Department

Fabrication Machining Assembly Total Plant

Direct Materials \$3,000 \$200 \$1,400 \$4,600

Direct Labor \$2,800 \$500 \$6,200 \$9,500

? ? ? ?

The company uses a plant wide overhead rate to apply manufacturing overhead cost to jobs.

Required:

1. Assuming use of a plant wide overhead rate:

a. Compute the rate for the current year.

b. Determine the amount of manufacturing overhead cost that would have been applied to Koopers job.

2. Suppose that instead of using plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions: a. Compute the rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.

Dr. Sawsan Halbouni

3. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using plantwide rate in question 1 (b) and using the departmental rates in question 2 (b). 4. Assume that it is customary in the industry to bid jobs at 150% of the total manufacturing cost (direct materials, direct labor, and applied overhead). What was the company’s bid price on the Koopes job? What would the bid price have been if departmental overhead rates had been used to apply overhead cost? 5. At the end of the year, the company estimated the following actual data relating to all job worked on during the year:

Department

Fabrication Machining Assembly Total Plant

Direct Materials \$190,000 \$16,000 \$114,000 \$320,000

Direct Labor \$210,000 \$108,000 \$262,000 \$580,000

\$360,000 \$420,000 \$84,000 \$864,000

Compute the underapplied or overapplied overhead for the year (a) assuming that a plantwide overhead rate rates are used and (b) assuming that departmental overhead rates is used.

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