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Chapter 19: Q3RQ (page 1063)
Question: Describe how a single plantwide overhead allocation rate is used.
Answer
Prior to the start of the period, the corporation chooses one allocation basis and uses it to compute the specified overhead allocation rate.
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The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.
Requirements
1. Compute the predetermined overhead allocation rate. Round to two decimal places.
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.
Question:Roxi, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Roxi鈥檚 senior managers expect the engineering work to reduceappraisal, internal failure, and external failure activities. The predicted reductionsin activities over the two-year life of the skateboards follow. Also shown are thepredetermined overhead allocation rates for each activity.
Activity | Predicted Reduction in Activity Units | Predetermined Overhead Allocation Rate per unit |
Inspection of incoming raw materials | 395 | \( 44 |
Inspection of finished goods | 395 | 26 |
Number of defective units discovered in-house | 1,500 | 54 |
Number of defective units discovered by customers | 275 | 73 |
Lost profits due to dissatisfied customers | 100 | 103 |
Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. Roxi spent \)106,000 on design engineering for the new skateboard. What is the net benefit of this 鈥減reventive鈥� quality activity?
3. What major difficulty would Roxi鈥檚 managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?
Which accounts are adjusted for the underallocated or overallocated overhead in JIT costing?
Koehler (see Exercise E19-15 and Exercise E19-16) makes handheld calculators in two models鈥攂asic and professional鈥攁nd wants to further refine its costing system by allocating overhead using activity-based costing. The estimated \(721,000 of manufacturing overhead has been divided into three primary activities: Materials Handling, Machine Setup, and Insertion of Parts. The following data have been compiled:
Material Handling | Machine Setup | Insertion of Parts | Total | |
Overhead costs | \) 45,000 | \( 136,000 | \) 540,000 | $ 721,000 |
Allocation base | Number of parts | Number of setups | Number of parts | |
Expected usage: | ||||
Basic Model | 32 parts per calculator | 24 setups per year | 32 parts per calculator | |
Professional Model | 58 parts per calculator | 44 setups per year | 58 parts per calculator |
Requirement 2
Compare your answers for Exercise E19-15, Exercise E19-16, and Exercise E19-17. What conclusions can you draw?
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