Folsom Company manufactures specialty tools to customer order. There are three operating departments. Departmental information on budgeted overhead and various activity measures for the coming year is as follows: Welding Assembly Finishing Estimated overheads $220,000 $62,000 $150,000 Direct labour hours 4,500 10,000 6,000 Direct labour cost $90,000 $150,000 $120,000 Machine hours 5,000 1,000 2,000 Currently, overheads are applied on the basis of machine hours using a plantwide rate. However, Folsom Company is considering the use of departmental overhead rates. After analysing the overhead costs and drivers for the various departments, the company decided that Welding and Finishing should base their overhead rates on machine hours while Assembly will base its overhead rate on direct labour hours. Folsom Company is preparing bids for two jobs with the following information: Job 1 Job 2 Direct materials $6,725 $9,340 Direct labour cost $1,800 $3,100 Direct labour hours: Welding 20 10 Assembly 60 20 Finishing 20 70 Number of machine hours: Welding 50 50 Assembly 60 25 Finishing 90 125 The typical bid price includes a 35% mark-up over the full manufacturing cost. Round all overhead rates to the nearest cent. Round all bid prices to the nearest dollar. Required: Calculate the plantwide overhead rate for Folsom Company based on machine hours and the bid price of each job using this rate. Predetermined Overhead Rate (POR) = Budgeted overheads ÷ Allocation Base Plantwide POR=/MH Bid price for each job using POR Job 1 Job 2 $ $ Direct materials Direct labour Prime cost (DM+DL) Overheads : [ + + ] × $ /MH : [ + + ] × $ /MH Total manufacturing cost 35% mark-up Bid price 26,089 31,374 Calculate the departmental overhead rates for the operating departments and the bid price of each job using these rates. POR for each department POR: Welding= =/ MH POR: Assembly= =/ DLH POR: Finishing= =/ MH Bid price for jobs using departmental POR Job 1 Job 2 $ $ Direct materials Direct labour cost Overheads Welding [ ] Assembly [ ] Finishing [ ] Total manufacturing cost 35% mark-up Bid price 24,093 32,588
Folsom Company manufactures specialty tools to customer order. There are three operating departments. Departmental information on budgeted overhead and various activity measures for the coming year is as follows:
|
|
Welding |
Assembly |
Finishing |
|
Estimated |
$220,000 |
$62,000 |
$150,000 |
|
Direct labour hours |
4,500 |
10,000 |
6,000 |
|
Direct labour cost |
$90,000 |
$150,000 |
$120,000 |
|
Machine hours |
5,000 |
1,000 |
2,000 |
Currently, overheads are applied on the basis of machine hours using a plantwide rate. However, Folsom Company is considering the use of departmental overhead rates. After analysing the overhead costs and drivers for the various departments, the company decided that Welding and Finishing should base their overhead rates on machine hours while Assembly will base its overhead rate on direct labour hours.
Folsom Company is preparing bids for two jobs with the following information:
|
|
Job 1 |
Job 2 |
|
Direct materials |
$6,725 |
$9,340 |
|
Direct labour cost |
$1,800 |
$3,100 |
|
Direct labour hours: |
|
|
|
20 |
10 |
|
60 |
20 |
|
20 |
70 |
|
Number of machine hours: |
|
|
|
50 |
50 |
|
60 |
25 |
|
90 |
125 |
The typical bid price includes a 35% mark-up over the full
Required:
- Calculate the plantwide overhead rate for Folsom Company based on machine hours and the bid price of each job using this rate.
- Predetermined Overhead Rate (POR) = Budgeted overheads ÷ Allocation Base
Plantwide POR=/MH
- Bid price for each job using POR
|
|
Job 1 |
Job 2 |
|
|
$ |
$ |
|
Direct materials |
|
|
|
Direct labour |
|
|
|
Prime cost (DM+DL) |
|
|
|
Overheads |
|
|
|
: [ + + ] × $ /MH |
|
|
|
: [ + + ] × $ /MH |
|
|
|
Total manufacturing cost |
|
|
|
35% mark-up |
|
|
|
Bid price |
26,089 |
31,374 |
- Calculate the departmental overhead rates for the operating departments and the bid price of each job using these rates.
- POR for each department
POR: Welding=
=/ MH
POR: Assembly=
=/ DLH
POR: Finishing=
=/ MH
- Bid price for jobs using departmental POR
|
|
Job 1 |
Job 2 |
|
|
$ |
$ |
|
Direct materials |
|
|
|
Direct labour cost |
|
|
|
Overheads |
|
|
|
|
|
|
|
|
|
|
|
|
Total manufacturing cost |
|
|
|
35% mark-up |
|
|
|
Bid price |
24,093 |
32,588 |
Question 2: adapted from Oct 2019 Test
Really-Me Co makes mobile phones for the mass market. The company uses a
At the beginning of the year, the company made the following estimates for the year:
|
|
Department |
|
|
|
Assembly |
Packaging |
|
Machine-hours |
24,300 |
62,800 |
|
Direct labour-hours |
76,900 |
36,500 |
|
Fixed manufacturing overhead cost |
$355,200 |
$480,700 |
|
Variable manufacturing overhead per machine-hour |
- |
$5.20 |
|
Variable manufacturing overhead per direct labour-hr |
$4.10 |
- |
Job 630 was started on October 1 and completed on October 25. The company's cost records show the following information regarding the job:
|
|
Department |
|
|
|
Assembly |
Packaging |
|
Direct materials cost |
$3,850 |
$1,260 |
|
Direct labour cost |
$2,770 |
$940 |
|
Machine-hours |
65 |
205 |
|
Direct labour-hours |
410 |
53 |
Required: (Round off all answers to nearest 2 decimal places where applicable.)
(a) Compute the predetermined overhead rates used in each department.
(b) (i) Compute the total overhead cost applied to Job 630.
(ii) Compute the total cost charged for Job 630.
Question 3: adapted from April 2020’s Graded Assignment
At the end of the year, the following costs were recorded for all jobs worked during the year:
|
|
Fabrication |
Assembly |
|
Direct labour hours: Hours |
14,500 |
24,000 |
|
Machine hours: Hours |
52,000 |
12,000 |
|
Departmental overhead costs ($) |
400,000 |
300,000 |
|
POR |
$8/MH |
$12/DLH |
Calculate the under/over applied overhead in each department for the year.
Fabrication: Applied overhead = $ under/over $?
Assembly: Applied overhead = $under/over $?
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