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As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200

As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200
Transcribed Image Text:As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200
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