Lecture 4 - P3-31 - PROBLEM 3-31 Plantwide versus...

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PROBLEM 3-31 Plantwide versus Departmental Overhead Rates; Underapplied or Overapplied Overhead “Don’t tell me we’ve lost another bid!” exclaimed Sandy Kovallas, president of Lenko Products, Inc. “I’m afraid so,” replied Doug Martin, the operations vice president. “One of our competitors underbid us by about $10,000 on the Hastings job.” “I just can’t figure it out,” said Kovallas. “It seems we’re either too high to get the job or too low to make any money on half the jobs we bid any more. What’s happened?” Lenko Products manufactures specialized goods to customers’ specifications and operates a joborder 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 Hastings job, for example, would have required manufacturing costs in the three departments as follows: The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
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