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Delph Company uses job-order costing with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that 50,000 machine-hours would be required for the period’s estimated level of production. It also estimated $910,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $1.80 per machine-hour.Because Delph has two manufacturing departments—Molding and Fabrication—it is considering replacing its plantwide overhead rate with departmental rates that would also be based on machine-hours. The company gathered the following information to enable calculating departmental overhead rates:  Molding Fabrication TotalMachine-hours 20,000 30,000 50,000Fixed manufacturing overhead cost $ 700,000 $ 210,000 $ 910,000Variable manufacturing overhead cost per machine-hour $ 3.00 $ 1.00  During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:Job D-70 Molding Fabrication TotalDirect materials cost $ 375,000 $ 325,000 $ 700,000Direct labor cost $ 200,000 $ 160,000 $ 360,000Machine-hours 14,000 6,000 20,000Job C-200 Molding Fabrication TotalDirect materials cost $ 300,000 $ 250,000 $ 550,000Direct labor cost $ 175,000 $ 225,000 $ 400,000Machine-hours 6,000 24,000 30,000Delph had no underapplied or overapplied manufacturing overhead during the year.Exercise 2-17 (Static) Part 2Required:2. Assume Delph uses departmental predetermined overhead rates based on machine-hours.Compute the departmental predetermined overhead rates.Compute the total manufacturing cost assigned to Job D-70 and Job C-200.If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200?What is Delph’s cost of goods sold for the year?

Question

Delph Company uses job-order costing with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that 50,000 machine-hours would be required for the period’s estimated level of production. It also estimated 910,000offixedmanufacturingoverheadcostforthecomingperiodandvariablemanufacturingoverheadof910,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of 1.80 per machine-hour.Because Delph has two manufacturing departments—Molding and Fabrication—it is considering replacing its plantwide overhead rate with departmental rates that would also be based on machine-hours. The company gathered the following information to enable calculating departmental overhead rates:  Molding Fabrication TotalMachine-hours 20,000 30,000 50,000Fixed manufacturing overhead cost 700,000 700,000 210,000 910,000Variablemanufacturingoverheadcostpermachine−hour 910,000Variable manufacturing overhead cost per machine-hour 3.00 1.00 Duringtheyear,thecompanyhadnobeginningorendinginventoriesanditstarted,completed,andsoldonlytwojobs—JobD−70andJobC−200.Itprovidedthefollowinginformationrelatedtothosetwojobs:JobD−70MoldingFabricationTotalDirectmaterialscost 1.00  During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:Job D-70 Molding Fabrication TotalDirect materials cost 375,000 325,000 325,000 700,000Direct labor cost 200,000 200,000 160,000 360,000Machine−hours14,0006,00020,000JobC−200MoldingFabricationTotalDirectmaterialscost 360,000Machine-hours 14,000 6,000 20,000Job C-200 Molding Fabrication TotalDirect materials cost 300,000 250,000 250,000 550,000Direct labor cost 175,000 175,000 225,000 $ 400,000Machine-hours 6,000 24,000 30,000Delph had no underapplied or overapplied manufacturing overhead during the year.Exercise 2-17 (Static) Part 2Required:2. Assume Delph uses departmental predetermined overhead rates based on machine-hours.Compute the departmental predetermined overhead rates.Compute the total manufacturing cost assigned to Job D-70 and Job C-200.If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200?What is Delph’s cost of goods sold for the year?

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Solution

To answer this question, we need to follow these steps:

Step 1: Compute the departmental predetermined overhead rates.

For the Molding department: Fixed overhead = 700,000Variableoverheadpermachinehour=700,000 Variable overhead per machine hour = 3.00 Total machine hours = 20,000

Predetermined overhead rate for Molding = (Fixed overhead + (Variable overhead per machine hour * Total machine hours)) / Total machine hours = (700,000+(700,000 + (3.00 * 20,000)) / 20,000 = $35.00 per machine hour

For the Fabrication department: Fixed overhead = 210,000Variableoverheadpermachinehour=210,000 Variable overhead per machine hour = 1.00 Total machine hours = 30,000

Predetermined overhead rate for Fabrication = (Fixed overhead + (Variable overhead per machine hour * Total machine hours)) / Total machine hours = (210,000+(210,000 + (1.00 * 30,000)) / 30,000 = $7.00 per machine hour

Step 2: Compute the total manufacturing cost assigned to Job D-70 and Job C-200.

For Job D-70: Molding = Direct materials + Direct labor + (Machine hours * Overhead rate) = 375,000+375,000 + 200,000 + (14,000 * 35.00)=35.00) = 1,085,000

Fabrication = Direct materials + Direct labor + (Machine hours * Overhead rate) = 325,000+325,000 + 160,000 + (6,000 * 7.00)=7.00) = 521,000

Total manufacturing cost for Job D-70 = Molding + Fabrication = 1,085,000+1,085,000 + 521,000 = $1,606,000

For Job C-200: Molding = Direct materials + Direct labor + (Machine hours * Overhead rate) = 300,000+300,000 + 175,000 + (6,000 * 35.00)=35.00) = 605,000

Fabrication = Direct materials + Direct labor + (Machine hours * Overhead rate) = 250,000+250,000 + 225,000 + (24,000 * 7.00)=7.00) = 593,000

Total manufacturing cost for Job C-200 = Molding + Fabrication = 605,000+605,000 + 593,000 = $1,198,000

Step 3: Compute the bid prices for Job D-70 and Job C-200.

Bid price for Job D-70 = Total manufacturing cost * 150% = 1,606,000∗150=1,606,000 * 150% = 2,409,000

Bid price for Job C-200 = Total manufacturing cost * 150% = 1,198,000∗150=1,198,000 * 150% = 1,797,000

Step 4: Compute Delph’s cost of goods sold for the year.

Cost of goods sold = Total manufacturing cost for Job D-70 + Total manufacturing cost for Job C-200 = 1,606,000+1,606,000 + 1,198,000 = $2,804,000

This problem has been solved

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