PlastiCo produces plastic pipe to customer specifications. Losses of less than 5 percent are considered normal because they are inherent in the production process. The company applies overhead to products using machine hours. PlastiCo used the following information in setting its predetermined OH rate for 2010:
Expected overhead other than rework ........................$850,000
Expected rework costs .......................................... 75,000
Total expected overhead .......................................$925,000
Expected machine hours for 2010 .............................. 100,000
During 2010, the following production and cost data were accumulated:
Total good production completed ........................... 2,000,000 feet of pipe
Total defects ...................................................... 40,000 feet of pipe
Ending inventory ................................................ 75,000 feet of pipe
Total cost of direct material for Job #B316 ...............$687,100
Total cost of direct labor for Job #B316 .....................$157,750
Total machine hours for Job #B316 ............................. 3,080
Cost of reworking defects during 2010 ...................... $75,500
Total actual overhead cost for 2010 ........................$862,000
a. Determine the overhead application rate for 2010.
b. Determine the cost for Job #B316 in 2010.
c. Assume that the rework is normal and those units can be sold for the regular selling price. How will PlastiCo account for the $75,500 of rework cost?
d. Assume that PlastiCo does not include rework costs in developing the overhead application rate because rework is related to specific jobs. Determine the cost of Job #B316.
e. Using the information from (d), assume that 20 percent of the rework cost was specifically related to 200 feet of pipe produced for Job #B316. The reworked pipe can be sold for $3.50 per foot. What is the total cost of Job.