Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

Direct labor-hours required to support estimated production 75,000
Machine-hours required to support estimated production 37,500
Fixed manufacturing overhead cost $ 225,000
Variable manufacturing overhead cost per direct labor-hour $ 1.60
Variable manufacturing overhead cost per machine-hour $ 3.20

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Direct materials $ 178
Direct labor cost $ 225
Direct labor-hours 15
Machine-hours 5

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

(Round your intermediate calculations to 2 decimal places. Round your Predetermined Overhead Rate answers to 2 decimal places and all other answers to the nearest whole dollar.)

1.

a. 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 28000+784000=$ 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

b.Total manufacturing cost assigned to Job 550:

Direct materials $ 175

Direct labor 225

Manufacturing overhead applied

($7.60 per DLH × 15DLA)= 114

Total manufacturing cost of Job 550 $ 514

c.The selling price for Job 550 is computed as follows:

Job 550

Total manufacturing cost $ 514

Markup (200%) 1,028

Selling price $ 1,542

2.

a.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) 70,000MHs

Predetermined overhead rate (a) ÷ (b) $ 15.20 per MH

b.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

2.

c. The selling price for Job 550 is computed as follows:

Job 550

Total manufacturing cost $ 476

Markup (200%) 952

Selling price $ 1,428

Explanation:

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