Kalp Corporation has two production departments, Machining and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Department's predetermined overhead rate is based on machine-hours and the Finishing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates: During the current month the company started and finished Job K928. The following data were recorded for this job:
If the company marks up its manufacturing costs by 20% then the selling price for Job K928 would be closest to: (Round your intermediate calculations to 2 decimal places.)
A) $4,275.00
B) $5,643.00
C) $5,130.00
D) $855.00

Question

Kalp Corporation has two production departments, Machining and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Machining Department's predetermined overhead rate is based on machine-hours and the Finishing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:  During the current month the company started and finished Job K928. The following data were recorded for this job:
 If the company marks up its manufacturing costs by 20% then the selling price for Job K928 would be closest to: (Round your intermediate calculations to 2 decimal places.)
A) $4,275.00 
B) $5,643.00 
C) $5,130.00 
D) $855.00

Quizplus · Accepted Answer

Step 1: Calculate the total manufacturing cost for Job K928

Machining Department:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total machine-hours = $200,000 / 50,000 machine-hours = $4.00 per machine-hour
Actual machine-hours used = 20 machine-hours
Machining Department overhead cost = Actual machine-hours used x Predetermined overhead rate = 20 machine-hours x $4.00 per machine-hour = $80.00

Finishing Department:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor-hours = $150,000 / 30,000 direct labor-hours = $5.00 per direct labor-hour
Actual direct labor-hours used = 60 direct labor-hours
Finishing Department overhead cost = Actual direct labor-hours used x Predetermined overhead rate = 60 direct labor-hours x $5.00 per direct labor-hour = $300.00

Direct materials cost = $450.00
Direct labor cost = $1,800.00

Total manufacturing cost = Machining Department overhead cost + Finishing Department overhead cost + Direct materials cost + Direct labor cost
Total manufacturing cost = $80.00 + $300.00 + $450.00 + $1,800.00 = $2,630.00

Step 2: Calculate the selling price for Job K928 with the markup of 20%

Selling price = Total manufacturing cost / (100% - Markup percentage) x 100%
Selling price = $2,630.00 / (100% - 20%) x 100% = $3,287.50 x 120% = $3,945.00

Therefore, the closest selling price with the given choices is C) $5,130.00.

Kalp Corporation Has Two Production Departments, Machining and Finishing