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Chapter 19: Q2RQ (page 1063)
How is the predetermined overhead allocation rate used to allocate overhead?
Estimated overhead costs are distributed among goods and services using the specified overhead rate.
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Koehler (see Exercise E19-15) makes handheld calculators in two models鈥攂asic and professional鈥攁nd wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:
Assembly Packaging
Department Department Total
Overhead costs \) 456,500 \( 264,500 \) 721,000
Machine hours:
Basic Model 185,000 MHr 45,000 MHr 230,000 MHr
Professional Model 230,000 MHr 55,000 MHr 285,000 MHr
Total 415,000 MH 100,000 MHr 515,000 MHr
Direct labor hours:
Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr
Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr
Total 125,125 DLHr 330,625 DLHr 455,750 DLHr
Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.
Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar鈥檚 activity areas and related data follow:
Activity | Budgeted Cost of Activity | Allocation Base | Predetermined Overhead Allocation Rate |
Materials handling | \( 240,000 | Number of parts | \)1.00 |
Assembly | 3,500,000 | Number of assembling direct labor hours | 17.00 |
Finishing | 190,000 | Number of finished units* | 4.50 |
*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory
Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:
Product | Total Units Produced | Total Direct materials Costs | Total Direct Labor Costs | Total Number of Parts | Total Assembling Direct Labor Hours |
Standard bookcase | 7,000 | \(91,000 | \)105,000 | 28,000 | 10,500 |
Unfinished bookcase | 7,500 | 82,500 | 75,000 | 22,500 | 7,500 |
Requirements
3. Which product costs are reported in the external financial statements? Which costs are used for management decision-making? Explain the difference.
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:High Mountain produces fleece jackets. The company uses JIT costing for its JIT production system.
High Mountain has two inventory accounts: Raw and In-Process Inventory and
Finished Goods Inventory. On April 1, 2018, the account balances were Raw and In-Process Inventory, \(10,000; Finished Goods Inventory, \)2,100.
The standard cost of a jacket is \(33, composed of \)12 direct materials plus \(21
conversion costs. Data for April鈥檚 activities follow:
Number of jackets completed 19,000
Number of jackets sold (on account for \)50 each) 18,600
Direct materials purchased (on account) \( 220,500
Conversion costs incurred \) 500,000
Requirements
1. What are the major features of a JIT production system such as that of High Mountain?
2. Prepare summary journal entries for April. Underallocated or overallocated
conversion costs are adjusted to Cost of Goods Sold monthly.
3. Use a T-account to determine the April 30, 2018, balance of Raw and In-ProcessInventory.
Jaunkas Corp. manufactures mid-fi and hi-fi stereo receivers. The following data have been summarized:
Mid-Fi Hi-Fi
Direct materials cost per unit \( 400 \) 1,800
Direct labor cost per unit 600 400
Indirect manufacturing cost per unit ? ?
Indirect manufacturing cost information includes the following:
Activity | Predetermined Overhead Allocation Rate | Mid-Fi | Hi-Fi |
Setup | \( 1,400 per setup | 36 setups | 36 setups |
Inspection | \) 700 per inspection hour | 35 inspection hours | 20 inspection hours |
Machine maintenance | $ 13 per machine hour | 1,900 machine hours | 1,150 machine hours |
The company plans to manufacture 125 units of the mid-fi receivers and 250 units of the hi-fi receivers. Calculate the product cost per unit for both products using activity-based costing.
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