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Comprehensive Problem $5($Static$)$

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The Gilster Company, a machine tooling firm, has several plants. One plant, located in St$.$ Cloud, Minnesota, uses a job order costing system for its batch production processes. The St$.$ Cloud plant has two departments through which most jobs pass. Plant$-$wide overhead, which includes the plant manager$$s salary, accounting personnel, cafeteria, and human resources, is budgeted at $$250,000.$ During the past year, actual plantwide overhead was $$240,000.$ Each department$$s overhead consists primarily of depreciation and other machine$-$related expenses. Selected budgeted and actual data from the St$.$ Cloud plant for the past year are as follows.

Department A Department B

Budgeted department overhead

$($excludes plantwide overhead$)$ $ $150,000$ $ $600,000$

Actual department overhead $160,000620,000$

Expected total activity:

Direct labor hours $35,00015,000$

Machine$-$hours $10,00040,000$

Actual activity:

Direct labor hours $51,0009,000$

Machine$-$hours $10,50042,000$

For the coming year, the accountants at the St$.$ Cloud plant are in the process of helping the sales force create bids for several jobs. Projected data pertaining only to job no$.110$ are as follows.

Direct materials $ $25,000$

Direct labor cost:

Department A $(2,200$ hr$)45,000$

Department B $(800$ hr$)10,000$

Machine$-$hours projected:

Department A $200$

Department B $1,200$

Units produced $10,000$

Comprehensive Problem $5($Static$)$ Part a

Required:

a$-1.$ Assume the St$.$ Cloud plant uses a single plantwide overhead rate to assign all overhead $($plantwide and department$)$ costs to jobs. Use expected total direct labor hours to compute the overhead rate.

a$-2.$ What is the expected cost per unit produced for job no$.110?$

Assume the St$.$ Cloud plant uses three separate overhead rates to assign overhead costs to jobs.

b$-1.$ Find the plant wide overhead rate by using expected machine hours.

b$-2.$ Find the department overhead rate using expected machine hours for Department A and Department B$.$

b$-3.$ Calculate the projected manufacturing costs per unit for job $110$ using the three separate rates computed in b$-1$ and b$-2.$

c$-1.$ The sales policy at the St$.$ Cloud plant dictates that job bids be calculated by adding $40$ percent to total manufacturing costs. What would be the bid for job no$.110$ using the overhead rate from part a$?$

c$-2.$ The sales policy at the St$.$ Cloud plant dictates that job bids be calculated by adding $40$ percent to total manufacturing costs. What would be the bid for job no$.110$ using the overhead rate from part b$?$

c$-3.$ Which of the overhead allocation methods would you recommend?

e$.$ A St$.$ Cloud subcontractor has offered to produce the parts for job no$.110$ for a price of $$12$ per unit. Assume the St$.$ Cloud sales force has already committed to the bid price based on the calculations in part b$.$ Should the St$.$ Cloud plant buy the $$12$ per unit part from the subcontractor or continue to make the parts for job no$.110$ itself?

multiple choice

Continue to make the part

Buy part from the subcontractor

f$.$ Compute incremental cost $($benefit$)$ to make if the St$.$ Cloud plant could use the facilities necessary to produce parts for job no$.110$ for another job that could earn an incremental profit of $$20,000?$

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