In: Accounting
Ryan Corporation manufactures auto steering systems. Prime cost and machine time estimates for one unit of the product for the year follow:
Direct materials | $ | 310 | |
Direct labor ($23/hour) | $ | 575 | |
Machine hours | 20 | ||
This product requires 15 hours of direct labor in Department A and
10 hours in Department B. Also, it requires 5 machine hours in
Department A and 15 machine hours in Department B. Using output as
the activity, the factory overhead costs estimated in these two
departments follow:
A | B | ||||||
Variable cost | $ | 315,000 | $ | 190,000 | |||
Fixed cost | 105,000 | 174,000 | |||||
Management expects the firm to produce 1,000 units during the
year.
Required:
1. Assume the total actual overhead base used was equal to the estimated base for the 1,000 units produced. Assume that factory overhead was applied on the basis of direct labor hours. Compute the predetermined plantwide factory overhead rate.
2. If factory overhead were applied on the basis of machine hours, what would be the plantwide overhead rate?
3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2?
5. Compute the departmental overhead rate and amount of applied overhead for Department A using direct labor hours as the allocation base and for Department B using machine hours as the allocation base.
Answer :
1.predetermined plantwide factory overhead rate
= Estimated Factory overhaed / Estimated allocation base ( Direct Labor hour)
= Variable cost + Fixed cost / Estimated allocation base ( Direct Labor hour)
= ( $ 315000+ $ 190000 ) + ( $ 105000 + $ 174000) / 1000 unit* 25 hour
= $ 784000/ 25000 hour
= $ 31.36 per direct labor hour
2.plantwide overhead rate
= Estimated Factory overhaed / Estimated allocation base ( Machine hour)
= ( $ 315000+ $ 190000 ) + ( $ 105000 + $ 174000) / 1000 unit* 20 hour
= $ 784000/ 20000 hour
= $ 39.20 per machine hour
3.
(a) total amount of applied factory overhead if direct labor hour plantwide overhead rate is used
A | B | |
Units produced | 1000 | 1000 |
Direct labor hour per unit | 15 hour | 10 Hour |
Total Direct labor hour (a) | 15000 hour | 10000 hour |
Factory overhead applied (a) * $ 31.36 | $ 470400 | $ 313600 |
b) total amount of applied factory overhead if machine hour plantwide overhead rate is used
A | B | |
Units produced | 1000 | 1000 |
Machie hour per unit | 5 hour | 15 Hour |
Total machine hour (a) | 5000 hour | 15000 hour |
Factory overhead applied (a)* $ 39.20 | $ 196000 | $ 588000 |
5. Computation of Departmental overhead rate
A | B | |
Variable cost | $ 315000 | $ 190000 |
Fixed cost | $ 105000 | $ 174000 |
Total overhead cost estimated (a) | $ 420000 | $ 364000 |
Estimated allocation base (b) | 15000 | 15000 |
Direct labor hour | Machine hour | |
Departmental overhead rate (a) /(b) |
$ 28 per DL |
$ 24.26666 per MH |
Overhead applied as per Departmental rate ,
A | B | |
Overhead applied as per Departmental rate , | $ 420000 | $ 364000 ( Approx) |
15000 *$ 28 | 15000* $ 24.26666 |