Question

PlastiCo produces plastic pipe to customer specifications. Losses of less than 5 percent are considered normal because they are inherent in the production process. The company applies overhead to products using machine hours. PlastiCo used the following information in setting its predetermined OH rate for 2010:

Expected overhead other than rework ……………………$850,000

Expected rework costs …………………………………… 75,000

Total expected overhead …………………………………$925,000

Expected machine hours for 2010 ………………….…….. 100,000

During 2010, the following production and cost data were accumulated:

Total good production completed ……………………... 2,000,000 feet of pipe

Total defects ……………………………………………… 40,000 feet of pipe

Ending inventory ………………………………………… 75,000 feet of pipe

Total cost of direct material for Job #B316 ……………$687,100

Total cost of direct labor for Job #B316 …………………$157,750

Total machine hours for Job #B316 ……………………….. 3,080

Cost of reworking defects during 2010 …………………. $75,500

Total actual overhead cost for 2010 ……………………$862,000

a. Determine the overhead application rate for 2010.

b. Determine the cost for Job #B316 in 2010.

c. Assume that the rework is normal and those units can be sold for the regular selling price. How will PlastiCo account for the $75,500 of rework cost?

d. Assume that PlastiCo does not include rework costs in developing the overhead application rate because rework is related to specific jobs. Determine the cost of Job #B316.

e. Using the information from (d), assume that 20 percent of the rework cost was specifically related to 200 feet of pipe produced for Job #B316. The reworked pipe can be sold for $3.50 per foot. What is the total cost of Job #B316?

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