Luarca Corporation has two manufacturing departments--Casting and Customizing. The company used the following data at the beginning of the year to calculate predetermined overhead rates:??CastingCustomizingTotal?Estimated total machine-hours (MHs)2,0003,0005,000?Estimated total fixed manufacturing overhead cost$11,600$7,200$18,800?Estimated variable manufacturing overhead cost per MH$1.90$2.80?During the most recent month, the company started and completed two jobs--Job F and Job L. There were no beginning inventories. Data concerning those two jobs follow:??Job FJob L?Direct materials$10,600$6,600?Direct labor cost$24,400$8,600?Casting machine-hours1,400600?Customizing machine-hours1,2001,800Required:Assume that the company uses a plantwide predetermined
manufacturing overhead rate based on machine-hours and uses a markup of 50% on manufacturing cost to establish selling prices. Calculate the selling prices for Job F and Job L.
What will be an ideal response?
The first step is to calculate the estimated total overhead costs in the two departments.
Casting
| ? | Estimated fixed manufacturing overhead | $11,600 |
| ? | Estimated variable manufacturing overhead ($1.90 per MH × 2,000 MHs) | 3,800 |
| ? | Estimated total manufacturing overhead cost | $15,400 |
Customizing
| ? | Estimated fixed manufacturing overhead | $7,200 |
| ? | Estimated variable manufacturing overhead ($2.80 per MH × 3,000 MHs) | 8,400 |
| ? | Estimated total manufacturing overhead cost | $15,600 |
The second step is to combine the estimated manufacturing overhead costs in the two departments ($15,400 + $15,600 = $31,000) to calculate the plantwide predetermined overhead rate as follow:
| ? | Estimated total manufacturing overhead cost | $31,000 | ? |
| ? | Estimated total machine hours | 5,000 | MHs |
| ? | Predetermined overhead rate | $6.20 | per MH |
The overhead applied to Job F is calculated as follows:
Overhead applied to a particular job = Predetermined overhead rate x Machine-hours incurred by the job
= $6.20 per MH x (1,400 MHs + 1,200 MHs)
= $6.20 per MH x (2,600 MHs)
= $16,120
The overhead applied to Job L is calculated as follows:
Overhead applied to a particular job = Predetermined overhead rate x Machine-hours incurred by the job
= $6.20 per MH x (600 MHs + 1,800 MHs)
= $6.20 per MH x (2,400 MHs)
= $14,880
Job F's manufacturing cost:
| ? | Direct materials | $10,600 |
| ? | Direct labor cost | 24,400 |
| ? | Manufacturing overhead applied | 16,120 |
| ? | Total manufacturing cost | $51,120 |
Job L's manufacturing cost:
| ? | Direct materials | $6,600 |
| ? | Direct labor cost | 8,600 |
| ? | Manufacturing overhead applied | 14,880 |
| ? | Total manufacturing cost | $30,080 |
The selling price for Job F:
| ? | Total manufacturing cost | $51,120 |
| ? | Markup (50%) | 25,560 |
| ? | Selling price | $76,680 |
The selling price for Job L:
| ? | Total manufacturing cost | $30,080 |
| ? | Markup (50%) | 15,040 |
| ? | Selling price | $45,120 |
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