EXERCISE 3–18 Plantwide and Departmental Overhead Rates; Job Costs [LO1, LO2, LO3] Smithson…

EXERCISE 3–18 Plantwide and Departmental Overhead Rates; Job Costs [LO1, LO2, LO3]  Smithson Company uses a job-order costing system and has two manufacturing departments— Molding and Fabrication. The company provided the following estimates at the beginning of the year:

 

 

Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,000

30,000

50,000

Fixed manufacturing overhead costs . . . . . . . . . . . . . . . . .

$800,000

$300,000

$1,100,000

Variable manufacturing overhead per machine-hour . . . . .

$5.00

$5.00

 

 

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-75 and Job C-100. It provided the following information related to those two jobs:

 

Job D-75:

Molding

Fabrication

Total

Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$375,000

$325,000

$700,000

Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$200,000

$160,000

$360,000

Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,000

5,000

20,000

 

Job C-100:

Molding

Fabrication

Total

Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$300,000

$250,000

$550,000

Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$175,000

$225,000

$400,000

Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,000

25,000

30,000

 

Smithson had no overapplied or underapplied manufacturing overhead during the year.

Required:

1.       Assume Smithson uses a plantwide overhead rate based on machine-hours.

a.       Compute the predetermined plantwide overhead rate.

b.       Compute the total manufacturing costs assigned to Job D-75 and Job C-100.

c.        If Smithson establishes bid prices that are 150% of total manufacturing costs, what bid price would it have established for Job D-75 and Job C-100?

d.       What is Smithson’s cost of goods sold for the year?

 

2.       Assume Smithson uses departmental overhead rates based on machine-hours.

a.       Compute the predetermined departmental overhead rates.

b.       Compute the total manufacturing costs assigned to Job D-75 and Job C-100.

c.        If Smithson establishes bid prices that are 150% of total manufacturing costs, what bid price would it have established for Job D-75 and Job C-100?

d.       What is Smithson’s cost of goods sold for the year?

3.       What managerial insights are revealed by the computations that you performed in this prob- lem? (Hint: Do the cost of goods sold amounts that you computed in requirements 1 and 2 differ from one another? Do the bid prices that you computed in requirements 1 and 2 differ from one another? Why?)

 

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