Posted: August 9th, 2016

Compute the rate for the current year?

Plantwide versus Departmental Overhead Rates: Underapplied or Overapplied Overhead.

Don’t tell me we’ve lost another bid!” exclaimed Sandy Kovallas, president of Lenko Product, Inc. “I’m afraid so,” replied Doug martin the operations vice president. “One of our competitors underbid us by about $10,000 on the Hastings job.” I just can’t figure it out.” Said Kovallas. “it seems we are either too high to get the job or too low to make any money on half the jobs we bid anymore. What’s happened?”

Lenko Products manufactures specialized goods to customers’ specifications and operates a job-order costing system. Manufacturing overhead cost applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year.


Cutting Machining Assembly Total Plant
Direct labor $300,000 $200,000 $400,000 $900,000
Manufacturing overhead $540,000 $800,000 $100,000 $1,440,000

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:


Cutting Machining Assembly Total Plant
Direct materials $12,000 $900 $5,600 $18,500
Direct labor $6,500 $1,700 $13,000 $21,200
Manufacturing Overheard ?? ?? ?? ??

The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.

1. Assuming the use of a plantwide overheard rate:
a) Compute the rate for the current year.
b) Determine the amount of manufacturing overhead cost that that would have been applied to the Hastings job.

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