Folsom Company manufactures specialty tools to customer order. There are three producing departments. Departmental information on budgeted overhead and various activity measures for the coming year is as follows:

Currently, overhead is applied on the basis of machine hours using a plantwide rate. However, Janine, the controller, has been wondering whether it might be worthwhile to use departmental overhead rates. She has analyzed the overhead costs and drivers for the various departments and decided that Welding and Finishing should base their overhead rates on machine hours and that Assembly should base its overhead rate on direct labor hours. Janine has been asked to prepare bids for two jobs with the following information:

The typical bid price includes a 35% markup over full manufacturing cost. Round all overhead rates to the nearest cent. Round all bid prices to the nearest dollar.

Required:

1. Calculate a plantwide rate for Folsom Company based on machine hours. What is the bid price of each job using this rate?

2. Calculate departmental overhead rates for the producing departments. What is the bid price of each job using these rates?

3. Which method should Folsom use for the basis of their bid? Why?

Transcribed Image Text:

Estimated overhead Direct labor hours Direct labor cost Machine hours Welding $220,000 4,500 $ 90,000 5,000 Assembly $ 62,000 10,000 $150,000 1,000 Finishing $150,000 6,000 $120,000 2,000