Question
In: Accounting
amou Company makes filing cabinets of two varieties, applying overhead at the rate of $85 per...
amou Company makes filing cabinets of two varieties, applying overhead at the rate of $85 per machine hour. Total actual overhead for the year is $1,500,000. Production data are as follows: Unit A Unit B Direct Material Cost $40 $50 Direct Labor Cost $25 $40 Budgeted Units Produced 4,000 7,500 Mamou is considering changing its overhead application method to an activity based system. A study uncovers three overhead activities budgeted as follows: Manufacturing set ups (total cost $320,000); Machine costs (total cost $936,000); and Engineering costs (total cost $264,000). Data on appropriate budgeted drivers are shown below:
UnitA UnitB
Number of Setups
100 60
Machine Hours
8,000 10,000
Engineering Shifts (8 hrs)
120 100
a. Calculate the total cost to make one of each type of filing cabinet, including material, labor, and overhead, applying overhead using the single overhead cost driver of $85 per machine hour: UnitA ___________ UnitB ____________
b. Will overhead be over- or underapplied, and by how much, using this approach? Overapplied _____ Underapplied _____ Amount ___________
c. What will you do with the amount of overapplied or underapplied overhead? (Choose one of the following actions)
1. Do nothing-leave it in the cost of the goods in inventory. _________
2. Adjust the cost of goods sold or related inventory accounts. ________
3. Report it as a separate item on the income statement. __________
d. Calculate the total cost to make one of each type of filing cabinet, including material, labor, and overhead, applying overhead using activity based costing and the drivers indicated in the problem: UnitA ____________ UnitB ____________
Solutions
Expert Solution
| Req a | ||||||
| Product -A | Product-B | |||||
| Number of units | 4000 | 7500 | ||||
| Direct Material | ||||||
| A (4000 units@40) | 160000 | |||||
| B(7500 units@55) | 412500 | |||||
| Direct labour | ||||||
| A (4000 units@25) | 100000 | |||||
| B (7500 units@40) | 300000 | |||||
| Overheads | ||||||
| A (8,000 hours @85) | 680000 | |||||
| B(10000 hours @85) | 850000 | |||||
| Total cost | 940000 | 1562500 | ||||
| Divide: Numbe rof units | 4000 | 7500 | ||||
| Cost per unit | 235 | 208.33 | ||||
| Req b: | ||||||
| Overheads actually incurred | $1,500,000 | |||||
| Less: Overheads applied | $1,530,000 | |||||
| ($680,000+$850000) | ||||||
| Overheads over-applied | $30,000 | |||||
| ReqC: The amount of over-applied overheads shall be: | ||||||
| 2. Adjust in cost of goods sold or related inventory accounts | ||||||
| Req d: | ||||||
| Activity rates: | ||||||
| Manufacturing set-up: $320,000 / Total setups = $320,000/160 = $2000 setup | ||||||
| machine cost: $936,000 / Machine hours = $936,000 /18,000 horus = $ 52 per hour | ||||||
| Engineering cost: $264,000 / Engineering shifts = $ 264,000 /220 = $1200 per shift | ||||||
| Product -A | Product-B | |||||
| Number of units | 4000 | 7500 | ||||
| Direct Material | ||||||
| A (4000 units@40) | 160000 | |||||
| B(7500 units@55) | 412500 | |||||
| Direct labour | ||||||
| A (4000 units@25) | 100000 | |||||
| B (7500 units@40) | 300000 | |||||
| Overheads | ||||||
| Setup cost | ||||||
| A(100 setup@2000) | 200000 | |||||
| B (60 setups @2000) | 120000 | |||||
| Machine cost | ||||||
| A (8000 hours @52) | 416000 | |||||
| B (10000 hours @52) | 520000 | |||||
| Engineering cost | ||||||
| A (120 shifts @1200) | 144000 | |||||
| B (100 shifts @1200) | 120000 | |||||
| Total cost | 1020000 | 1472500 | ||||
| Divide: Numbe rof units | 4000 | 7500 | ||||
| Cost per unit | 255 | 196.33 | ||||
ekkarill92 answered 1 year agoRelated Solutions
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