Factory Overhead Rate, Entry for Applying Factory Overhead, and Factory Overhead Account Balance

The cost accountant for Kenner Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning May 1 would be $638,400, and total direct labor costs would be $532,000. During May, the actual direct labor cost totaled $46,000, and factory overhead cost incurred totaled $57,400.

a. What is the predetermined factory overhead rate based on direct labor cost? Enter your answer as a whole percent not in decimals.
%

b. Journalize the entry to apply factory overhead to production for May.

c. What is the May 31 balance of the account Factory Overhead—Blending Department?

d. Does the balance in part (c) represent overapplied or underapplied factory overhead?

The Petroco Company uses a highly toxic chemical in one of its manufacturing processes. It must have the product delivered by special cargo trucks designed for safe shipment of chemicals. As such, ordering (and delivery) costs are relatively high, at $2,600 per order. The chemical product is packaged in 1-gallon plastic containers. The cost of holding the chemical in storage is $50 per gallon per year. The annual demand for the chemical, which is constant over time, is 2,000 gallons per year. The lead time from time of order placement until receipt is 10 days. The company operates 310 working days per year. Compute the optimal order quantity, the total minimum inventory cost, and the reorder point.

Sunspot Beverages, Ltd., of Fiji uses the weighted-average method in its process costing system. It makes blended tropical fruit drinks in two stages. Fruit juices are extracted from fresh fruits and then blended in the Blending Department. The blended juices are then bottled and packed for shipping in the Bottling Department. The following information pertains to the operations of the Blending Department for June.

5. Prepare a cost reconciliation report for the Blending Department for June.

places.)

Shanken Corp. issued a 30-year, 5.9 percent semiannual bond
three years ago. The bond currently sells for 106 percent of its face value. The company's tax rate is 22 percent.
a. What is the pretax cost of debt?
b. What is the aftertax cost of debt?
c. Which is more relevant, the pretax or the aftertax cost of debt? Why?

Calculating Cost of Debt.
For the firm in the previous problem, suppose the book value
of the debt issue is $25 million. In addition, the company has a second debt issue on the market, a zero coupon bond with nine years left to maturity; the book value of this issue is $60 million and the bonds sell for 68 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt now?

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Since our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.

Perform the first-stage allocation of costs to the activity cost pools.

Compute the activity rates for the activity cost pools.

Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.)

a. A routine 1,000-square-foot asbestos removal job.
b. A routine 2,000-square-foot asbestos removal job.
c. A nonroutine 2,000-square-foot asbestos removal job.

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Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Since our average cost is only $2.315 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.

Perform the first-stage allocation of costs to the activity cost pools.

• Req 1

Compute the activity rates for the activity cost pools.

Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.)

a. A routine 1,000-square-foot asbestos removal job.
b. A routine 2,000-square-foot asbestos removal job.
c. A nonroutine 2,000-square-foot asbestos removal job.

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Comprehensive Problem 5
Part B:

Note: This section is a continuation from Part A of the comprehensive problem. Be sure you have completed Part A before attempting Part B. You may have to refer back to data presented in Part A and use answers from Part A when completing this section.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part B—August Budgets

During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:

Materials Inventory:

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.

Required:

5. Prepare the August production budget.

6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent.

7. Prepare the August direct labor cost budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required.

8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank.

9. Prepare the August budgeted income statement, including selling expenses.

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Since our average cost is only $2.58 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.” To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.

Req 3A to 3C

Perform the first-stage allocation of costs to the activity cost pools.

Compute the activity rates for the activity cost pools.

Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.)

a. A routine 1,000-square-foot asbestos removal job.
b. A routine 2,000-square-foot asbestos removal job.
c. A nonroutine 2,000-square-foot asbestos removal job.

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Problem #1 (Activity-Based Costing)

Anderson Company manufactures two products, for which the following estimated information for next year is available.                                     

A machine is setup once for each batch and the setup is the same regardless of the type of product.  There is one inspection performed for each batch and the inspection time is 1.5 hour for the deluxe product and ¼ hour for the regular product. The company purchases raw materials by batch. The purchasing agent has to make eight purchase orders per batch for deluxe product, and four purchase orders per batch for regular product.

The company is considering switching to an ABC system.  A recent cost study revealed the company expects $780,000 of overhead next year from the following activities:

Requirements:

1. Assign OH cost for Regular Model using activity rates (show your work).

2. Assign OH cost for Deluxe Model using consumption ratios (show your work).

3. Determine the gross profit (per unit) of the Regular and Deluxe models using the ABC information.

Anderson Company wants to implement reduced approximately relevant ABC system by using the two most expensive activities for cost assignment. Under this new approach, what is the overhead cost assigned to Deluxe Model? (show your work).

Question Set 2. For this question set, you will calculate labor productivity and multifactor productivity, both in tons of rice produced per dollar value of inputs.

A Rice Manufacturer employs 75 field workers (each working 40 hours per week at a wage of $10/hr) and 20 line workers (each working 40 hours per week at a wage of $20/hr).

The business has capital expenses of $15,000 per week and produces 375,000 tons of rice per week.

Recently, the company decided to invest on additional equipment which increased the capital expenses by 6%. Also, the number of field workers was cut short by 25% whereas line workers were 1% more recruited. Both filed and line workers were given a raise of 8% and 5% respectively. Due to the above-mentioned changes, the new system reported to have a 4% more output than the old system.

You will need the following formulas:

Labor productivity = [Weekly output][Weekly total labor cost]

Multifactor productivity = [Weekly output][Weekly total labor cost+Weekly capital expenses]

After copying the table below into Excel, solve the following questions and fill the table

1. Calculate the Total Input Cost for Old and New systems (Labor cost + capital expense) (2 pts)

2. Calculate the Capital Expenditure and Output of the new system (2 pts)

3. Calculate labor productivity including all employees (line workers & field workers) for the old and new systems, in tons of output per dollar of input. (4pts)

4. Calculate the multifactor productivity (including line workers, field workers, and capital expenses) for the old and new systems, in tons of output per dollar of input. (4pts)

5. Calculate the percentage changes in labor and multifactor productivity. (3pts)