"Don't tell me we've lost another bid!" exclaimed Janice Hudson, president of Prime Products Inc. "I'm afraid so," replied Doug Martin the operations vice president. "One of our competitors underbid us by about $14,000 on the Hastings job." "I just can't figure it out," said Hudson. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid. What's happened Prime Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturin overhead cost is applied to jobs on the basis of direct labour cost. The following estimates were made at the beginning of the year: Direct labour Manufacturing overhead Direct material Direct labour Manufacturing overhead Cutting $ 328,500 $ 591,300 Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing costs in the three departments as follows: Predetermined overhead rate Required: 1. Assuming the use of a plantwide overhead rate: a. Compute the rate for the current year. Machining $ 219,000 $ 876,000 $ 109,500 Cutting $27,200 $16,000 % Department ? Assembly $ 438,000 Department Total Plant $ 985,500 $1,576,800 Machining Assembly Total Plant $ 2,800 $ 9,400 $ 5,500 $24,400 ? ? The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs. $39,400 $45,900 ?

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter27: Lean Principles, Lean Accounting, And Activity Analysis

Section: Chapter Questions

Problem 27.4BPR: Pareto chart and cost of quality report for a manufacturing company The president of Mission Inc....

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b. Determine the amount of manufacturing overhead cost that would have been applied to the Hastings job. 2. Suppose that instead of using a 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 Hastings job. 4. Assume that it is customary in the industry to bid jobs at 160% of total manufacturing cost (direct materials, direct labour, and applied overhead). a. What was the company's bid price on the Hastings job? b. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?

Problem 5-31 Plantwide versus Departmental Overhead Rates; Underapplied or Overapplied Overhead
[LO3, LO5, LO7]
"Don't tell me we've lost another bid!" exclaimed Janice Hudson, president of Prime Products Inc. "I'm afraid so," replied Doug Martin,
the operations vice president. "One of our competitors underbid us by about $14,000 on the Hastings job." "I just can't figure it out,"
said Hudson. "It seems we're either too high to get the job or too low to make any money on half the jobs we bid. What's happened?"
Prime Products manufactures specialized goods to customers' specifications and operates a job-order costing system. Manufacturing
overhead cost is applied to jobs on the basis of direct labour cost. The following estimates were made at the beginning of the year:
Direct labour
Manufacturing overhead
Direct material
Direct labour
Manufacturing overhead
Cutting
$ 328,500
$ 591,300
Jobs require varying amounts of work in the three departments. The Hastings job, for example, would have required manufacturing
costs in the three departments as follows:
Predetermined overhead rate
Required:
1. Assuming the use of a plantwide overhead rate:
a. Compute the rate for the current year.
Machining
$ 219,000
Assembly
$ 438,000
$ 876,000 $ 109,500
Cutting
$27,200
$16,000
%
Department
?
Department
Total Plant
$ 985,500
$1,576,800
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
Machining Assembly Total Plant
$ 2,800 $ 9,400
$39,400
$ 5,500 $24,400
?
$45,900
?
?

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