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Landen Corporation uses a job-order costing system
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 150,000Machine-hours required to support estimated production 75,000Fixed manufacturing overhead cost$420,000Variable manufacturing overhead cost per direct labor-hour$4.60Variable manufacturing overhead cost per machine-hour$9.20
During the year, Job 550 was started and completed. The following information is available with respect to this job:
Direct materials$195Direct labor cost$288Direct labor-hours 15Machine-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?
Expert Solution
1-a: Computation of Plantwide Predetermined Overhead Rate:
Predetermined Overhead Rate = Estimated Overhead / Estimated Direct Labor Hours
= ($420,000 + 150,000*$4.60) / 150,000
= ($690,000+$1,110,000)/150,000
= $7.40 per labor hour
1-b: Computation of Total Manufacturing Cost of Job 550:
Total manufacturing cost of job 550 = Direct materials + Direct labor + Overhead applied
= $195 + $288 + (15*$7.40)
= $594
1-c: Computation of Selling price of Job 550:
Selling price of Job 550 = Manufacturing cost + Markup
= $594 + ($594*200%)
= $1,782
2-a: Computation of Predetermined overhead rate:
Predetermined overhead rate = Estimated overhead / Estimated direct labor hours
= ($420,000 + 75,000*$9.20) / 75,000
= ($420,000+$690,000)/75,000
= $14.80 per labor hour
2-b: Computation of Total manufacturing cost of job 550:
Total manufacturing cost of job 550 = Direct materials + Direct labor + Overhead applied
= $195 + $288 + (5*$14.80)
= $557
2-c: Computation of Selling price of Job 550:
Selling price of Job 550 = Manufacturing cost + Markup
= $557 + ($557*200%)
= $1,671
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