Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production 145,000
Machine-hours required to support estimated production 72,500
Fixed manufacturing overhead cost $406,000
Variable manufacturing overhead cost per direct labor-hour $4.40
Variable manufacturing overhead cost per machine-hour $8.80
During the year, Job 550 was started and completed. The following information is available with respect to this job:
Direct materials $195
Direct labor cost $288
Direct labor-hours 15
Machine-hours 5
Required:
1. Assume that 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 that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. 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?

1a. $7.2 per DLH

1b. $591

1c.$1,773

2a. $14.4 per DLH

2b. $555

2c.$1,665

Explanation:

1A. Computation of the plantwide predetermined overhead rate

Plantwide predetermined overhead rate=($406,000/145,000)+$4.40

Plantwide predetermined overhead rate=$2.8+$4.40

Plantwide predetermined overhead rate=$7.2 per DLH

Therefore the plantwide predetermined overhead rate will be $7.2 per DLH

1B. Computation of the total manufacturing cost of Job 550

Direct materials $195

Direct labor cost $288

Overhead $108

( 15*$7.2)

Total cost $591

Therefore the total manufacturing cost of Job 550 will be $591

1C. Calculation for what selling price would it establish for Job 550

Direct materials $195

Direct labor cost $288

Overhead $108

( 15*$7.2)

Total cost $591

Markup(200%) $1,182

(200%*$591)

Selling price $1,773

Therefore the selling price it would establish for Job 550 will be $1,773

2A. Computation of the plantwide predetermined overhead rate

Plantwide predetermined overhead rate=($406,000/72,500)+$8.80

Plantwide predetermined overhead rate=$5.6+$8.80

Plantwide predetermined overhead rate=$14.4 per DLH

Therefore the plantwide predetermined overhead rate will be $14.4 per DLH

1B. Computation of the total manufacturing cost of Job 550

Direct materials $195

Direct labor cost $288

Overhead $72

( 5*$14.4)

Total cost $555

Therefore the total manufacturing cost of Job 550 will be $555

1C. Calculation for what selling price would it establish for Job 550

Direct materials $195

Direct labor cost $288

Overhead $72

( 5*$14.4)

Total cost $555

Markup(200%) $1,110

(200%*$555)

Selling price $1,665

Therefore the selling price it would establish for Job 550 will be $1,665

A. $12,000 B. $34,000 C. $125,000 D. $137,000

The depreciable basis of the equipment is $137,000,option D

Explanation:

The depreciable basis of the equipment is the initial cost of the equipment to be recognized as asset ,which consists of the original purchase price of $125,000,the shipping cost of $7,000,set-up and testing cost of $5,000.

The annual labor cost of running the equipment is not part of the initial cost as it is an annual expense to be recognized directly in income statement as payroll cost.

Depreciable basis=$125,000+$7,000+$5,000=$137,000