Question

Introduction to managerial acconting

Aztec Builders allocates manufacturing overhead to jobs based on machine hours. The company has the following estimated costs for the upcoming year:

Direct materials used	$25,000
Direct labour costs	$62,000
Salary of factory supervisor	$50,000
Advertising expense	$33,000
Heating and lighting costs for factory	$21,000
Depreciation on factory equipment	$19,000
Sales commissions	$8,000

The firm estimates that 1,800 direct labour hours will be worked in the upcoming year, while 2,000 machine hours will be used during the year. The predetermined indirect allocation rate per machine hour is closest to

a. $56.

b. $36.

c. $100.

d. $45.

e. $40.

2. Blockbuster Entertainment manufactures digital video equipment. For each unit $900 of direct material is used and there is $1,500 of direct manufacturing labour at $30 per hour. Manufacturing overhead is applied at $35 per direct manufacturing labour hour. Calculate the cost of each unit.

a. $4,975

b. $4,025

c. $1,750

d. $4,150

e. $4,725

3. In an activity-cost pool

a. a measure of the activity performed serves as the cost allocation base.

b. the costs have a cause-and-effect relationship with the cost-allocation base for that activity.

c. the cost pools are homogeneous over time.

d. costs in a cost pool can always be traced directly to products.

e. each pool pertains to a narrow and focused set of costs.

Answer the following question(s) using the information below.

Peter’s Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2019, manufacturing overhead cost estimates total $360,000 for an annual production capacity of 8 million pages.

For 2019, Peter’s Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis:

Cost pool	Manufacturing overhead costs	Activity level
Design changes	$60,000	400 design changes
Setups	260,000	5,000 setups
Inspections	40,000	8,000 inspections
Total manufacturing overhead costs	$360,000

During 2019, two customers, World Makers and Happy Studios, are expected to use the following printing services:

Activity	World Makers	Happy Studios
Pages	60,000	76,000
Design changes	10	0
Setups	20	10
Inspections	30	38

4. What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 8 million pages of production capacity?

a. $0.05 per page

b. $0.035 per page

c. $0.35 per page

d. $0.025 per page

e. $0.045 per page

5. Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for World Makers during 2019?

a. $2,500

b. $21,000

c. $1,500

d. $2,700

e. $2,100

6. Assuming activity-cost pools are used, what are the activity-cost driver rates for design changes, setups, and inspections cost pools?

a. $200 per change, $64 per setup, $5 per inspection

b. $150 per change, $52 per setup, $5 per inspection

c. $150 per change, $64 per setup, $5 per inspection

d. $150 per change, $60 per setup, $5 per inspection

e. $200 per change, $5 per setup, $64 per inspection

Short Answer

The following costs are attributed to the Quilt Company:

Purchase of raw materials (all direct)	$297,100
Direct labour cost	$141,800
Manufacturing overhead costs	$178,160
Inventories:
Beginning raw materials	$10,000
Ending raw materials	$900
Beginning work in process	$20,000
Ending work in process	$11,800
Beginning finished goods	$20,000
Ending finished goods	$5,800

Quilt Company used a 120% predetermined overhead rate based on direct labour cost.

Required:

7. Calculate the cost of goods manufactured.

8. What was the cost of goods sold before adjusting for any under or over applied overhead?

9. By how much was manufacturing overhead cost under or over applied?

10. Would the summary journal entry to close any under or over applied manufacturing overhead cost be a debit or credit to COGS?

Answer 1

(1) allocation base - machine hours = 2,000

indirect manufacturing OH includes the manufacturing costs which are directly related to production. The costs related to factory are included.

However selling costs like advertsiing, General and administrative expenses are not included.

Indirect manufacturing OH = Salary of factory supervisor + Heating and Lighting for factory+Depreciation on factory equipment

=$50,000+$21,000+$19,000

=$90,000

The predetermined indirect allocation rate per machine hour = Total indirect allocation rate/Total machine hours

=$90,000/2,000

=$45

Answer D

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