“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $3,000. 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’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year: Department FabricatingMachiningAssemblyTotal PlantManufacturing overhead$360,500$412,000$92,700$865,200Direct labor$206,000$103,000$309,000$618,000 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 FabricatingMachiningAssemblyTotal PlantDirect materials$3,600 $300 $2,000 $5,900 Direct labor$4,000 $600 $6,800 $11,400 Manufacturing overhead ? ? ? ? Required:2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions:b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).a. What was the company’s bid price on the Koopers job using a plantwide predetermined overhead rate?b. What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost? Platinum Web Services designs and maintains websites for small business entrepreneurs. Competition has been intensifying in recentyears and the company has been losing business to larger web design firms. Summary data concerning the last two years ofoperations follow:Last YearThis YearEstimated hours of service demandedEstimated overhead costActual hours of service providedActual overhead cost incurredHours of service available at capacity1,150110,0001,050110,0002,2001,400$110,0001,300$$110,0002,200The company applies its overhead costs to jobs using the hours of service provided as the allocation base. For example, this year andlast year, 37 service-hours were required to maintain the website for a small company called Verde Consulting. All of Platinum'soverhead costs are fixed, and the actual overhead cost incurred was exactly as estimated at the beginning of the year in last year andthis year.Required:1. Platinum Web Services computes its predetermined overhead rate at the beginning of each year based on the estimated overheadcost and the estimated hours of service demanded for the year. Using this approach, how much overhead would have been applied tothe Verde Consulting job last year? How about this year?2. The president of Platinum Web Services has heard that some companies in the industry have changed to a system of computing thepredetermined overhead rate based on the hours of service available at capacity. He would like to know what effect this methodwould have on job costs. How much overhead cost would have been applied to the Verde Consulting job last year using this method?How much would have been applied this year?3. If Platinum computes its predetermined overhead rate based on the hours of service available at capacity as in (2) above, how muchunused capacity cost would the company have incurred last year? This 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 $3,000. 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’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year: Department Fabricating Machining Assembly Total Plant Manufacturing overhead $ 360,500 $ 412,000 $ 92,700 $ 865,200 Direct labor $ 206,000 $ 103,000 $ 309,000 $ 618,000 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 Fabricating Machining Assembly Total Plant Direct materials $ 3,600 $ 300 $ 2,000 $ 5,900 Direct labor $ 4,000 $ 600 $ 6,800 $ 11,400 Manufacturing overhead ? ? ? ? Required: 2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions: b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. 4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). a. What was the company’s bid price on the Koopers job using a plantwide predetermined overhead rate? b. What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Cornerstones of Cost Management (Cornerstones Series)

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ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

Problem 21P: At the end of 20x1, Mejorar Company implemented a low-cost strategy to improve its competitive...

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“Blast it!” said David Wilson, president of Teledex Company. “We’ve just lost the bid on the Koopers job by $3,000. 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’ specifications and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead (assumed to be all fixed) to jobs. The following estimates were made at the beginning of the year:

	Department
	Fabricating	Machining	Assembly	Total Plant
Manufacturing overhead	$	360,500	$	412,000	$	92,700	$	865,200
Direct labor	$	206,000	$	103,000	$	309,000	$	618,000

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
	Fabricating	Machining	Assembly	Total Plant
Direct materials	$	3,600		$	300	$	2,000	$	5,900
Direct labor	$	4,000		$	600	$	6,800	$	11,400
Manufacturing overhead		?			?		?		?

Required:

2. Suppose that instead of using a plantwide predetermined overhead rate, the company had used departmental predetermined overhead rates based on direct labor cost. Under these conditions:

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

4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).

a. What was the company’s bid price on the Koopers job using a plantwide predetermined overhead rate?

b. What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost?

Platinum Web Services designs and maintains websites for small business entrepreneurs. Competition has been intensifying in recent
years and the company has been losing business to larger web design firms. Summary data concerning the last two years of
operations follow:
Last Year
This Year
Estimated hours of service demanded
Estimated overhead cost
Actual hours of service provided
Actual overhead cost incurred
Hours of service available at capacity
1,150
110,000
1,050
110,000
2,200
1,400
$
110,000
1,300
$
$
110,000
2,200
The company applies its overhead costs to jobs using the hours of service provided as the allocation base. For example, this year and
last year, 37 service-hours were required to maintain the website for a small company called Verde Consulting. All of Platinum's
overhead costs are fixed, and the actual overhead cost incurred was exactly as estimated at the beginning of the year in last year and
this year.
Required:
1. Platinum Web Services computes its predetermined overhead rate at the beginning of each year based on the estimated overhead
cost and the estimated hours of service demanded for the year. Using this approach, how much overhead would have been applied to
the Verde Consulting job last year? How about this year?
2. The president of Platinum Web Services has heard that some companies in the industry have changed to a system of computing the
predetermined overhead rate based on the hours of service available at capacity. He would like to know what effect this method
would have on job costs. How much overhead cost would have been applied to the Verde Consulting job last year using this method?
How much would have been applied this year?
3. If Platinum computes its predetermined overhead rate based on the hours of service available at capacity as in (2) above, how much
unused capacity cost would the company have incurred last year? This year?

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