Question

In: Accounting

Lotus Ltd has identified the following overhead costs and cost drivers for next year Overhead Items...

Lotus Ltd has identified the following overhead costs and cost
drivers for next year
Overhead Items E ( cost) $
Setups cost 90,000
Ordering Cost 50,000
Maintenance cost 150,000
Power 30,000
Cost Driver E( actual transactions)
Number of setups 400
Number of orders 4,000
Machine Hours 25,000
Kilowatt hours 75,000
The following is one of the jobs completed during the year
Job 700 Job 701
Direct materials $1200 $600
Direct Labor $900 $400
Units completed 250 100
DLH 40 20
Number of setups 2 1
Number of orders 10 4
Machine hours 50 40
Kilowatt hours 60 25
Actual overhead $2500 $1250
The company’s practical activity is 9000 DHL

REQUIRED
Part A
1. Calculate the predetermined rate for Job 700 using FBC
based on DHL for each job
2. Calculate total product cost using FBC based on DHL for
job 700
3. Calculate the unit cost of the job
4. Is the overhead over-applied or under-applied
Part B
1. Calculate the PR for job 701 using machine hours
2. Calculate the total product cost using FBC based on machine
hours for job 701
3. Calculate the unit cost
4. Is the overhead under or over-applied?

Solutions

Expert Solution

Part A:

1. Predetermined rate based on DLH

Predetermined rate = Total Overhead costs / Total Direct Labor hours

Total Overhead costs = $90,000 + $50,000 + $150,000 + $30,000 = $320,000

Total Direct Labor hours = 9,000

Predetermined rate = $320,000 / 9,000 DLH = $35.56 per DLH

2. Total Product Cost based on DHL for job 700

Particulars $
Direct Materials 1,200.00
Direct Labor 900.00
Overhead costs (40 DHL * $35.56 per DHL) 1,422.40
Total Product costs 3,522.40

3. Unit Cost of job 700

Unit cost = $3,522.40 / 250 Units = $14.09 per unit

4. Under or over applied overheads

Applied overheads = 40 DLH * $35.56 per DLH = $1,422.40

Actual overheads = $2,500

Under applied overheads = $2,500 - $1,422.40 = $1,077.60

Part B:

1. Predetermined rate based on machine hours

Predetermined rate = Total Overhead costs / Total Machine hours

Total Overhead costs = $90,000 + $50,000 + $150,000 + $30,000 = $320,000

Total Machine hours = 25,000

Predetermined rate = $320,000 / 25,000 machine hours = $12.80 per machine hour

2. Total Product Cost based on DHL for job 701

Particulars $
Direct Materials 600
Direct Labor 400
Overhead costs (40 machine hours * $12.80) 512
Total Product costs 1,512

3. Unit Cost of job 701

Unit cost = $1,512 / 100 Units = $15.12 per unit

4. Under or over applied overheads

Applied overheads = 40 machine hours * $12.80 per machine hour = $512

Actual overheads = $1,250

Under applied overheads = $1,250 - $512 = $738

All the best...

ekkarill92 answered 4 months ago
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