Case 3-22 Assignment Rebekah Hobson Debra Touhey Managerial Accounting November 7, 2021 This study source was downloaded by 100000755149362 from CourseHero.com on 02-27-2022 12:10:06 GMT -06:00 https://www.coursehero.com/file/116898303/Assignment-3docx/ Required: 1. Using the company’s plantwide approach: a. Compute the plantwide predetermined rate for the current year. Predetermined Overhead Rate = Estimate total manufacturing overhead cost / estimated total amount of the allocation base Total Manufacturing overhead cost =840,000 Total amount of direct labor = 600,000 Predetermined overhead rate = 840,000 / 600,000 Predetermined overhead rate = 140% cost of direct labor b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. Overhead applied = Predetermined Overheard Rate X Actual Direct labor hours charge Predetermined Overhead Rate = 140% Direct labor hour charge = $9500 Overhead Applied = 140% X 9500 Overhead Applied = $13,300 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: a. Compute the predetermined overhead rate for each department for the current year. Fabricating predetermined Overhead Rate - 350,000 / $200,000 = 175% Machining Predetermined Overhead Rate - $400,000 / $100,000 = 400% Assembly Predetermined Overhead Rate - $90,000 / $300,000 = 30% b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job. Fabricating Overhead Applied – 175% X $2,800 = $4,900 This study source was downloaded by 100000755149362 from CourseHero.com on 02-27-2022 12:10:06 GMT -06:00 https://www.coursehero.com/file/116898303/Assignment-3docx/ Machining Overhead Applied - 400% X $500 = $2,000 Assembly Overhead Applied – 30% X $6,200 = $1,860 Total Overhead Applied = $8,760 3. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using the plantwide approach in question 1 (b) and using the departmental approach in question 2 (b). The manufacturing overhead applied that was calculated using plantwide was $13,300. The manufacturing overhead applied that was computed using the departmental is $8,700. There is a $4,600 difference between these two calculations. This is significant differences between the calculations. When using the plantwide numbers, it is mainly used when the company makes one type of product. It is used when all parts of the company are working equally to produce the product. Using departmental numbers, it separates all the departments, calculates those separately, and then adds them together to get the total manufacturing overhead applied (Averkamp, n.d.). One advantage of using the department approach is that the company has better control over how much each department participates in making a product. It also calculates more accurate numbers. A disadvantage to the departmental approach is that figuring the departments separate makes it possible for a department to get left out of the calculation (Financial Accounting, 2015). 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). What was the company’s bid price on the Koopers job using a plantwide predetermined overhead rate? What would the bid price have been if departmental predetermined overhead rates had been used to apply overhead cost? If the company bid price using a plantwide predetermined overhead rate are used: 150% - Bidding Rate $4,600 – Direct Materials $9,500 – Direct Labor $13,300 – Calculated Manufacture Overhead Applied $27,400 - Total Manufacturing Cost Bid Price = Bid rating x Manufacturing Cost 150% x 27,400 = $41,100 Bid Price This study source was downloaded by 100000755149362 from CourseHero.com on 02-27-2022 12:10:06 GMT -06:00 https://www.coursehero.com/file/116898303/Assignment-3docx/ If the company’s bid price if the departmental predetermined overhead rates are used: 150% - Bid Price $4,600 - Direct materials $9,500 – Direct Labor $8,760 – Calculated Manufacturing Overhead Applied $22,860 - Total Manufacturing Cost Bid Price = Bid Rating x Manufacturing Cost 150% x $22,860 = $34,290 This study source was downloaded by 100000755149362 from CourseHero.com on 02-27-2022 12:10:06 GMT -06:00 https://www.coursehero.com/file/116898303/Assignment-3docx/ References Averkamp, H. (n.d.). What are departmental overhead rates? Accounting Coach. Retrieved November 7, 2021, from https://www.accountingcoach.com/blog/what-are-departmentaloverhead-rates#:~:text=Departmental%20overhead%20rates%20are%20used%20by %20many%20manufacturers,different%20processes%20%28each%20of%20which%20has %20different%20costs%29. Financial Accountancy . Org. (2015). Plant Wide and Departmental Overhead Absorption Rates. Financial Accountancy . Org . Retrieved November 7, 2021, from https://www.financialaccountancy.org/absorption-costing-approach-or-total-costing/plantwide-and-departmental-overhead-absorption-rate/. This study source was downloaded by 100000755149362 from CourseHero.com on 02-27-2022 12:10:06 GMT -06:00 https://www.coursehero.com/file/116898303/Assignment-3docx/ Powered by TCPDF (www.tcpdf.org)
