Reference no: EM132987716

Problem - 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 $200,000. During the past year, actual plantwide overhead was $190,000. 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 overhea(excludes plantwide overhead) $85,000 $368,000

Actual department overhead 100,000 375,000

Expected total activity:

Direct labor hours 42,000 10,000

Machine-hours 17,000 46,000

Actual activity:

Direct labor hours 42,500 8,200

Machine-hours 17,500 48,000

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 $18,000

Direct labor cost:

Department A (2,200 hr) 33,000

Department B (1,200 hr) 6,000

Machine-hours projected:

Department A 100

Department B 1,200

Units produced 13,000

c-1. The sales policy at the St. Cloud plant dictates that job bids be calculated by adding 30 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 30 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?

d. Compute the under- or overapplied overhead for the St. Cloud plant for the year. (Round your intermediate calculations to 2 decimal places.)

e. A St. Cloud subcontractor has offered to produce the parts for job no. 110 for a price of $6 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 $6 per unit part from the subcontractor or continue to make the parts for job no. 110 itself?

f. Would your response to part e change 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 $19,000?