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Chapter 19: Q19-19RQ (page 1063)
Which accounts are adjusted for the underallocated or overallocated overhead in JIT costing?
Cost of goods sold and conversion cost accounts are used for adjusting under-allocated or over-allocated overhead in JIT costing.
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Question:Newton Company has analyzed its production process and identified two primary activities. These activities, their allocation bases, and their estimated costs are listed below.
Activity | Allocation Base | Estimated Activity | Estimated Costs |
Purchasing | Number of purchase orders | 200 purchase orders | \( 10,000 |
Materials Handling | Number of parts | 15,000 parts | \) 7,500 |
The company manufactures two products: Regular and Super. The products use the following resources in March:
Regular Super
Number of purchase orders 5 purchase orders 7 purchase orders
Number of parts 600 parts 750 parts
5. Compute the predetermined overhead allocation rates using activity-based costing.
6. Determine the amount of overhead allocated to Regular products in March.
7. Determine the amount of overhead allocated to Super products in March.
Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:
materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Materials handling \( 12,000 Number of parts
Machine setup 3,100 Number of setups
Insertion of parts 42,000 Number of parts
Finishing 86,000 Finishing direct labor hours
Total \) 143,100
Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.
Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company鈥檚 original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.
A task force headed by Harris鈥檚 CFO recently designed an ABC system with four activities. The ABC system retains the current system鈥檚 two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:
___________________________________________________________________
Activity Allocation Base Predetermined Overhead
Allocation Rate____
Materials handling Number of parts \) 0.85
Machine setup Number of setups 500.00
Assembling Number of assembling hours 80.00
Shipping Number of shipments 1,500.00_______
Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:
____________________________________________________________
Job A Job B__
Number of parts 15,000 2,000
Number of setups 6 4
Number of assembling hours 1,500 200
Number of shipments 1 1
Total direct labor hours 8,000 600
Number of units produced 100 10
Direct materials cost \( 220,000 \) 30,000
Direct labor cost \( 160,000 \) 12,000__
Requirements
1. Compute the budgeted product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).
Bubba and Danny are college friends planning a skiing trip to Killington before the new year. They estimated the following for the trip:
Estimated Activity Allocation
Costs Allocation Base Bubba Danny
Food \( 400 Pounds of food eaten 24 26
Skiing 300 Number of lift tickets 2 0
Lodging 280 Number of nights 2 2
\) 980
Requirements
2. Danny does not like the idea of sharing the costs equally because he plans to stay in the room rather than ski. Danny suggests that each type of cost be allocated to each person based on the above-listed allocation bases. Using the activity allocation for each person, calculate the amount that each person would pay based on his own consumption of the activity.
Refer to Exercise E19-20. For 2019, Eason鈥檚 managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activitybasedn costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company鈥檚 standard and deluxe models for 2019:
Standard Deluxe
Sales price \( 800.00 \) 940.00
Direct materials 31.00 48.00
Direct labor 45.00 52.00
Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.
Requirements
3. Which course of action will yield more income for Eason?
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