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Chapter 19: Q15E (page 1068)

Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.

Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?

Short Answer

Expert verified

Predetermined overhead allocation rate: $1.4

Overhead amount for basic model: $322,000

Overhead amount for professional model:$399,000

Step by step solution

01

Calculation of predetermined overhead allocation rate

Predeterminedoverheadallocationrate=TotalestimatedoverheadTotalestimatedmachinehour=$721,000515,000=$1.4

02

Calculation of overhead for basic and professional model

Overheadamountforbasicmodel=predetrminedoverheadallocationratexmachinehourusedbybasicmodel

=$1.4x230,00=$322,000

localid="1654597806848" Overheadamountforprofessionalmodel=predetruminedoverheadallocationratexmachinehourusedbyprofessionalmodel =$1.4脳285,000=$399,000

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Most popular questions from this chapter

Clason, Inc. manufactures door panels. Suppose Clason is considering spending the following amounts on a new total quality management (TQM) program:

___________________________________________________________________

Strength-testing one item from each batch of panels \( 68,000

Training employees in TQM 27,000

Training suppliers in TQM 39,000

Identifying suppliers who commit to on-time delivery of

perfect-quality materials 58,000

Clason expects the new program would save costs through the following:

___________________________________________________________________

Avoid lost profits from lost sales due to disappointed customers \) 86,000

Avoid rework and spoilage 63,000

Avoid inspection of raw materials 57,000

Avoid warranty costs 15,000

Requirements

1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

2. Should Clason implement the new quality program? Give your reason.

Answer

Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.

The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March鈥檚 activities follow:

Number of jackets completed 15,000

Number of jackets sold (on account, for \)50 each) 14,600

Direct materials purchased (on account) \( 177,500

Conversion costs incurred \) 521,000

Requirements

2. Prepare summary journal entries for March. Underallocated or overallocated conversion costs are adjusted to Cost of Goods Sold monthly.


Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. 鈥淚f we don鈥檛 at least match the quality improvements our competitors are making,鈥� he told Bruegger, 鈥渨e鈥檒l soon be out of business.鈥� Bruegger began by listing various 鈥渃osts of quality鈥� that Darrel incurs. The first six items that came to mind were:

a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, \(13,000.

b. Lost profits from lost sales due to reputation for less-than-perfect products, \)35,000.

c. Costs of inspecting components in one of Darrel鈥檚 production processes, \(40,000.

d. Salaries of engineers who are redesigning components to withstand electrical overloads, \)65,000.

e. Costs of reworking defective components after discovery by company inspectors, \(50,000.

f. Costs of electronic components returned by customers, \)70,000.

Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.

Question:Western, Inc. is a technology consulting firm focused on Web site development and integration of Internet business applications. The president of the company expectsto incur \(640,000 of indirect costs this year, and she expects her firm to work 4,000direct labor hours. Western鈥檚 systems consultants provide direct labor at a rate of \)280per hour. Clients are billed at 160% of direct labor cost. Last month, Western鈥檚 consultantsspent 170 hours on Halbert鈥檚 engagement.

Requirements

1. Compute Western鈥檚 predetermined overhead allocation rate per direct labor hour.

2. Compute the total cost assigned to the Halbert engagement.

3. Compute the operating income from the Halbert engagement.

Why is JIT costing sometimes called backflush costing?
See all solutions

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