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Required informationExercise 2-17 (Algo) Plantwide and Departmental Predetermined Overhead Rates; Job Costs [LO2-1, LO2-2, LO2-3, LO2-4]Skip to question[The following information applies to the questions displayed below.]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 60,000 machine-hours would be required for the period’s estimated level of production. It also estimated $980,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $5.00 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 25,000 35,000 60,000Fixed manufacturing overhead cost $ 720,000 $ 260,000 $ 980,000Variable manufacturing overhead cost per machine-hour $ 5.00 $ 2.00  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 $ 370,000 $ 320,000 $ 690,000Direct labor cost $ 200,000 $ 160,000 $ 360,000Machine-hours 15,000 10,000 25,000Job C-200 Molding Fabrication TotalDirect materials cost $ 220,000 $ 300,000 $ 520,000Direct labor cost $ 140,000 $ 280,000 $ 420,000Machine-hours 10,000 25,000 35,000Delph had no underapplied or overapplied manufacturing overhead during the year.Exercise 2-17 (Algo) 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

Required informationExercise 2-17 (Algo) Plantwide and Departmental Predetermined Overhead Rates; Job Costs [LO2-1, LO2-2, LO2-3, LO2-4]Skip to question[The following information applies to the questions displayed below.]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 60,000 machine-hours would be required for the period’s estimated level of production. It also estimated 980,000offixedmanufacturingoverheadcostforthecomingperiodandvariablemanufacturingoverheadof980,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of 5.00 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 25,000 35,000 60,000Fixed manufacturing overhead cost 720,000 720,000 260,000 980,000Variablemanufacturingoverheadcostpermachine−hour 980,000Variable manufacturing overhead cost per machine-hour 5.00 2.00 Duringtheyear,thecompanyhadnobeginningorendinginventoriesanditstarted,completed,andsoldonlytwojobs—JobD−70andJobC−200.Itprovidedthefollowinginformationrelatedtothosetwojobs:JobD−70MoldingFabricationTotalDirectmaterialscost 2.00  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 370,000 320,000 320,000 690,000Direct labor cost 200,000 200,000 160,000 360,000Machine−hours15,00010,00025,000JobC−200MoldingFabricationTotalDirectmaterialscost 360,000Machine-hours 15,000 10,000 25,000Job C-200 Molding Fabrication TotalDirect materials cost 220,000 300,000 300,000 520,000Direct labor cost 140,000 140,000 280,000 $ 420,000Machine-hours 10,000 25,000 35,000Delph had no underapplied or overapplied manufacturing overhead during the year.Exercise 2-17 (Algo) 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 manufacturing overhead cost = 720,000Variablemanufacturingoverheadcostpermachine−hour=720,000 Variable manufacturing overhead cost per machine-hour = 5.00 Total machine-hours = 25,000

Predetermined overhead rate for Molding = (Fixed overhead cost + (Variable overhead cost per machine-hour * Total machine-hours)) / Total machine-hours = (720,000+(720,000 + (5.00 * 25,000)) / 25,000 = $29.00 per machine-hour

For the Fabrication department: Fixed manufacturing overhead cost = 260,000Variablemanufacturingoverheadcostpermachine−hour=260,000 Variable manufacturing overhead cost per machine-hour = 2.00 Total machine-hours = 35,000

Predetermined overhead rate for Fabrication = (Fixed overhead cost + (Variable overhead cost per machine-hour * Total machine-hours)) / Total machine-hours = (260,000+(260,000 + (2.00 * 35,000)) / 35,000 = $9.43 per machine-hour

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

For Job D-70: Total manufacturing cost = Direct materials cost + Direct labor cost + (Machine-hours * Predetermined overhead rate) = 690,000+690,000 + 360,000 + ((15,000 * 29.00)+(10,000∗29.00) + (10,000 * 9.43)) = 1,050,000+1,050,000 + 437,300 = $1,487,300

For Job C-200: Total manufacturing cost = Direct materials cost + Direct labor cost + (Machine-hours * Predetermined overhead rate) = 520,000+520,000 + 420,000 + ((10,000 * 29.00)+(25,000∗29.00) + (25,000 * 9.43)) = 940,000+940,000 + 482,750 = $1,422,750

Step 3: 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?

For Job D-70: Bid price = Total manufacturing cost * 150% = 1,487,300∗150=1,487,300 * 150% = 2,230,950

For Job C-200: Bid price = Total manufacturing cost * 150% = 1,422,750∗150=1,422,750 * 150% = 2,134,125

Step 4: What is Delph’s cost of goods sold for the year?

Cost of goods sold = Total manufacturing cost of Job D-70 + Total manufacturing cost of Job C-200 = 1,487,300+1,487,300 + 1,422,750 = $2,910,050

This problem has been solved

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