Problem 2-16 (30 minutes)
1a. The estimated total overhead cost is computed as follows:
Y = $784,000 + ($2.00 per DLH) (140,000 DLHs)
Estimated fixed manufacturing overhead................... $ 784,000
Estimated variable manufacturing overhead: $2.00
per DLH × 140,000 DLH........................................ 280,000
Estimated total manufacturing overhead cost............ $1,064,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead (a). . $1,064,000
Estimated total direct labor-hours (b)............ 140,000 DLH
Predetermined overhead rate (a) ÷ (b).......... $7.60 per DLH
1b. Total manufacturing cost assigned to Job 550:
Direct materials....................................................... $175
Direct labor............................................................. 225
Manufacturing overhead applied ($7.60 per DLH ×
15 DLH)................................................................ 114
Total manufacturing cost of Job 550......................... $514
1c. The selling price for Job 550 is computed as follows:
Job 550
Total manufacturing cost.......................................... $ 514
Markup (200%)....................................................... 1,028
Selling price............................................................. $1,542
Problem 2-16 (continued)
2a. The estimated total overhead cost is computed as follows:
Y = $784,000 + ($4.00 per MH)(70,000 MHs)
Estimated fixed manufacturing overhead................... $ 784,000
Estimated variable manufacturing overhead: $4.00
per MH × 70,000 MHs........................................... 280,000
Estimated total manufacturing overhead cost............ $1,064,000
The predetermined overhead rate is computed as follows:
Estimated total manufacturing overhead (a). . $1,064,000
Estimated total machine-hours (b)................ 70,000 MHs
Predetermined overhead rate (a) ÷ (b).......... $15.20 per MH
2b. Total manufacturing cost assigned to Job 550:
Direct materials....................................................... $175
Direct labor............................................................. 225
Manufacturing overhead applied ($15.20 per MH × 5
MH)...................................................................... 76
Total manufacturing cost of Job 550......................... $476
2c. The selling price for Job 550 is computed as follows:
Job 550
Total manufacturing cost.......................................... $ 476
Markup (200%)....................................................... 952
Selling price............................................................. $1,428
3. The price for Job 550 using direct labor-hours as the allocation
base ($1,542) is $114 higher than the price derived using
machine-hours as the allocation base ($1,428). If machine-hours
is the better choice for an allocation base, then if Landen
continues to use direct labor-hours as its overhead allocation base,
it will overprice jobs that are intensive users of direct labor-hours
and non-intensive users of machine-hours. In a bidding situation,
Landen will tend to lose bids on jobs such as Job 550 if its
competitors have more accurate cost accounting systems.
Problem 2-18 (15 minutes)
1. The estimated total overhead cost is computed as follows:
Y = $350,000 + ($1.00 per DLH)(20,000 DLHs)
Estimated fixed overhead......................................... $350,000
Estimated variable overhead: $1.00 per DLH ×
20,000 DLHs......................................................... 20,000
Estimated total overhead cost................................... $370,000
The predetermined overhead rate is computed as follows:
Estimated total overhead (a)......................... $370,000
Estimated total direct labor-hours (b)............ 20,000 DLHs
Predetermined overhead rate (a) ÷ (b).......... $18.50 per DLH
2. Total manufacturing cost assigned to Mr. Wilkes:
Direct materials....................................................... $590
Direct labor............................................................. 109
Overhead applied ($18.50 per DLH × 6 DLH)............ 111
Total cost assigned to Mr. Wilkes.............................. $810
3. The price charged to Mr. Wilkes is computed as follows:
Job Wilkes
Total manufacturing cost.......................................... $ 810
Markup (40%)......................................................... 324
Selling price............................................................. $1,134
