In: Accounting
1.Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,800 units of Basic Product and 1,400 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $99,585.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:
Estimated | Expected Activity | |||||||||
Activity Cost Pool | Overhead Costs | Basic Product | Deluxe Product | Total | ||||||
Activity 1 | $ | 30,720 | 1,300 | 600 | 1,900 | |||||
Activity 2 | 17,625 | 1,900 | 250 | 2,150 | ||||||
General Factory | 51,240 | 540 | 840 | 1,380 | ||||||
Total | $ | 99,585 | ||||||||
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
a. $8.20.
b. $46.32.
c. $72.16.
d. $9.79.
2.South Beach Industries reports the following information about resources. At the beginning of the year, South Beach estimated it would spend $296,300 for materials, $48,500 for purchasing, $32,300 for setups, and $45,000 for repairs.
Cost Driver | |||||
Rate | Volume | ||||
Resources used | |||||
Materials | $ | 16 | /lb | 18,800 | lbs |
Purchasing | $ | 270 | /purchase order | 170 | purchase orders |
Setups | $ | 400 | /setup | 85 | setups |
Repairs | $ | 45 | /Job | 800 | jobs |
Resources supplied | |||||
Materials | $ | 310,800 | |||
Purchasing | $ | 51,100 | |||
Setups | $ | 35,950 | |||
Repairs | $ | 40,900 | |||
Compute unused resource capacity for repairs for South Beach.
a. $4,900.
b. $9,000.
c. $4,100.
d. $3,900.
3. The manufacturing overhead budget at Levetron Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,700 direct labor-hours will be required in August. The variable overhead rate is $9.20 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $143,990 per month, which includes depreciation of $25,640. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be:
a.$9.20.
b. $27.90.
c.$24.57.
d.$18.70.
1) | Predetermined overhead rate = estimated overhead cost / estimated total activity | ||||||
=$17625/2150 | |||||||
=$8.20 | |||||||
Correct Option:a | |||||||
2) | Unused resource capacity = supplied - used | ||||||
=$40900 - ($45*800 jobs) | |||||||
=$40900-36000 | |||||||
4900 | |||||||
=$4900 | |||||||
Correct option:a | |||||||
3) | |||||||
Predetermined variable overhead rate | $ 9 | ||||||
Add: Predetermined fixed overhead rate | $ 19 | ||||||
($143990/7700 hours) | |||||||
Total | $ 28 | ||||||
Correct option:b | |||||||