"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $3,000. It seems we're either too high to get the job or too low to make any money on half the jobs we bid."
Teledex Company manufactures products to customers' specifications and operates a job order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year:
|
|
Department
|
|
|
|
|
|
|
|
Fabricating
|
Machining
|
Assembly
|
Total Plant
|
|
Direct labor
|
$
|
206,000
|
$
|
103,000
|
$
|
309,000
|
$
|
618,000
|
|
Manufacturing overhead
|
$
|
360,500
|
$
|
412,000
|
$
|
92,700
|
$
|
865,200
|
|
|
Jobs require varying amounts of work in the three departments. The Koopers job, for example,
would have required manufacturing costs in the three departments as follows:
|
|
Department
|
|
|
|
|
|
|
|
Fabricating
|
Machining
|
Assembly
|
Total Plant
|
|
Direct materials
|
$
|
3,600
|
$
|
300
|
$
|
2,000
|
$
|
5,900
|
|
Direct labor
|
$
|
4,000
|
$
|
600
|
$
|
6,800
|
$
|
11,400
|
|
Manufacturing overhead
|
|
?
|
|
?
|
|
?
|
|
?
|
1. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead).
a. What was the company's bid price on the Koopers job if a plantwide overhead rate had been used to apply overhead cost?
b. What would the bid price have been if departmental overhead rates had been used to apply overhead cost?