Question 1:
CASE 3-30 Plantwide versus Departmental Overhead Rates; Underapplied or Overapplied Overhead "Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $2,000. It seems we're either too high to get the job or too low to make any money on half the jobs we bid:'
Teledex Company manufactures products to customers' specifications and operates a job-order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year:
Jobs require varying amounts of work in the three departments. The Koopers job, for example. would have required manufacturing costs in the three departments as follows:
|
Department |
|
|
Fabricating |
Machining |
Assembly |
Total Plant |
| Direct labor |
$200,000 |
$100,000 |
$300,000 |
$600,000 |
| Manufacturing overhead |
$350,000 |
$400,000 |
$90,000 |
$840,000 |
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
|
Department |
|
|
Fabricating |
Machining |
Assembly |
Total Plant |
| Direct materials |
$3,000 |
$200 |
$1,400 |
$4,600 |
| Direct labor |
$2,800 |
$500 |
$6,200 |
$9,500 |
| Manufacturing overhead |
? |
? |
? |
? |
Required:
1. Assuming use of a plantwide overhead rate:
a. Compute the rate for the current year.
b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
2. Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:
a. Compute the rate for each department for the current year.
b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
3. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using the plantwide rate in question 1 (b) and using the departmental rates in question 2 (b).
4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What was the company's bid price on i the Koopers job? What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year.
Question 2: Selected Financial Ratios
The financial statements for Castile Products, Inc., are given below:
Castile Products, Inc.
Balance Sheet
December 31
Assets
Current assets:
Cash ..................................... $ 6,500
Accounts receivable, net ......... 35,000
Merchandise inventory ........ 70,000
Prepaid expenses ...................... 3,500
Total current assets .................. 115,000
Property and equipment, net ....... 185,000
Total assets ............................. $300,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities .................. $ 50,000
Bonds payable, 10% ............... 80,000
Total liabilities .......................... 130,000
Stockholders' equity:
Common stock, $5 per value $ 30,000
Retained earnings .................. 140,000
Total stockholders' equity ......... 170,000
Total liabilities and equity .......... $300,000
Castile Products, Inc.
Income Statement
For the Year Ended December 31
Sales ............................................ $420,000
Cost of goods sold ............................................292,500
Gross margin ...................................... 127,500
Selling and administrative expenses .... 89,500
Net operating income ............................. 38,000
Interest expense.............................................. 8,000
Net income before taxes ....................... 30,000
Income taxes (30%) ............................... 9,000
Net income ....................................... $ 21,000
Account balances at the beginning of the year were: accounts receivable, $25 tory, $60,000. All sales were on account.
Required:
Compute the following financial data and ratios:
1. Working capital.
2. Current ratio.
3. Acid-test ratio.
4. Debt-to-equity ratio.
5. Times interest earned ratio.
6. Average collection period.
7. Average sale period.
8. Operating cycle.