Not again! said Jeff Fielding, president of Reducir Company. The company just lost the bid on...

  

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"Not again!" said Jeff Fielding, president of Reducir Company. The company just lost the bid on the Parsons job by $1,500. Unfortunately, this had become all too typical-that is, the company's bids seemed to be either too high and the job went to another company or too low and the company got the job but then did not make any money." Reducir Company manufactures unique products according to customers' requirements and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead to jobs. The following estimates were made at the beginning of 2021: Department Welding Cutting Assembly Total Manufacturing overhead Direct labor S262,500 S150,000 $ 67,500 $225,000 S300,000 $ 75,000 $630,000 $450,000 All jobs require work in the three departments-Cutting, Welding, and Assembly. For example, the Parsons job, would have required manufacturing costs as follows: Department Welding Cutting Assembly Total $2,250 $2,100 $150 $375 S1,050 $4,650 $3,450 $7,125 Direct materials Direct labor Manufacturing overhead Consistent with industry standards, Reducir bids jobs at cost plus 50 percent. Requirements 1. Following Reducir's plantwide approach: a. Compute the plantwide predetermined overhead rate for 2021. b. Determine the amount of manufacturing overhead cost that would have been applied to the Parsons job. c. What was the company's bid price on the Parsons job using a plantwide predetermined overhead rate? 2. Suppose instead Reducir had used predetermined overhead rates for each department (still based on direct labor cost): a. Compute the predetermined overhead rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Parsons job. c. What would the company's bid price have been on the Parsons job if departmental predetermined overhead rates had been used to apply overhead cost? 3. Considering your prior analysis, explain the difference between the manufacturing overhead that would have been applied to the Parsons job using the plantwide approach versus using the departmental approach. That is, why do the two methods result in different amounts based on your analysis of Reducir? 4. Discuss which approach-plantwide or departmental-your group would recommend Reducir Company use and justify (explain) your recommendation. "Not again!" said Jeff Fielding, president of Reducir Company. The company just lost the bid on the Parsons job by $1,500. Unfortunately, this had become all too typical-that is, the company's bids seemed to be either too high and the job went to another company or too low and the company got the job but then did not make any money." Reducir Company manufactures unique products according to customers' requirements and uses a job-order costing system. The company uses a plantwide predetermined overhead rate based on direct labor cost to apply its manufacturing overhead to jobs. The following estimates were made at the beginning of 2021: Department Welding Cutting Assembly Total Manufacturing overhead Direct labor S262,500 S150,000 $ 67,500 $225,000 S300,000 $ 75,000 $630,000 $450,000 All jobs require work in the three departments-Cutting, Welding, and Assembly. For example, the Parsons job, would have required manufacturing costs as follows: Department Welding Cutting Assembly Total $2,250 $2,100 $150 $375 S1,050 $4,650 $3,450 $7,125 Direct materials Direct labor Manufacturing overhead Consistent with industry standards, Reducir bids jobs at cost plus 50 percent. Requirements 1. Following Reducir's plantwide approach: a. Compute the plantwide predetermined overhead rate for 2021. b. Determine the amount of manufacturing overhead cost that would have been applied to the Parsons job. c. What was the company's bid price on the Parsons job using a plantwide predetermined overhead rate? 2. Suppose instead Reducir had used predetermined overhead rates for each department (still based on direct labor cost): a. Compute the predetermined overhead rate for each department for the current year. b. Determine the amount of manufacturing overhead cost that would have been applied to the Parsons job. c. What would the company's bid price have been on the Parsons job if departmental predetermined overhead rates had been used to apply overhead cost? 3. Considering your prior analysis, explain the difference between the manufacturing overhead that would have been applied to the Parsons job using the plantwide approach versus using the departmental approach. That is, why do the two methods result in different amounts based on your analysis of Reducir? 4. Discuss which approach-plantwide or departmental-your group would recommend Reducir Company use and justify (explain) your recommendation.

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