Problem 2-18 (Algo) Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3]
Landen Corporation uses job-order costing. At the beginning of the year, it made the following estimates:
Direct labor-hours required to support estimated production 90,000
Machine-hours required to support estimated production 45,000
Fixed manufacturing overhead cost $252,000
Variable manufacturing overhead cost per direct labor-hour $2.40
Variable manufacturing overhead cost per machine-hour $4.80
During the year, Job 550 was started and completed. The following information pertains to this job:
Direct materials $236
Direct labor cost $371
Direct labor hours 15
Machine-hours 5
Required:
1. Assume 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 Landen's controller believes that machine hours is a better allocation base than direct labor-hours. Under this approach:
