During the coming accounting year, Baker Manufacturing, Inc., anticipates the following costs, expenses, and operating data Direct material (16,000 lb.) $ 200,000 Direct labor (@ $35.00/hr.) 490,000 Indirect material 30,000 Indirect labor 55,000 Sales commissions 85,000 Factory administration 40,000 Non factory administrative expenses 50,000 Other manufacturing overhead* 120,000 *Provides for operating 122,500 machine hours. a. Calculate the predetermined manufacturing overhead rate for the coming year for each of the following application bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours. Round direct labor hours and machine hours answers to two decimal places, when applicable. Round direct labor costs to the nearest one decimal place percentage, when applicable (example: 76.4%). Application base Manufacturing overhead rate Direct labor hours Answer Direct labor costs Answer Machine hours Answer b. For each item in requirement a, determine the proper application of manufacturing overhead to Job 63, to which 56 direct labor hours, $375 of direct labor cost, and 100 machine hours have been charged. Round answers to two decimal places, when applicable. Application base Overhead applied to Job 63 Direct labor hours Answer Direct labor costs Answer Machine hours Answer
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
During the coming accounting year, Baker Manufacturing, Inc., anticipates the following costs, expenses, and operating data
| Direct material (16,000 lb.) | $ 200,000 |
| Direct labor (@ $35.00/hr.) | 490,000 |
| Indirect material | 30,000 |
| Indirect labor | 55,000 |
| Sales commissions | 85,000 |
| Factory administration | 40,000 |
| Non factory administrative expenses | 50,000 |
| Other manufacturing |
120,000 |
| *Provides for operating 122,500 machine hours. |
a. Calculate the predetermined manufacturing overhead rate for the coming year for each of the following application bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours.
Round direct labor hours and machine hours answers to two decimal places, when applicable. Round direct labor costs to the nearest one decimal place percentage, when applicable (example: 76.4%).
| Application base | Manufacturing overhead rate |
|---|---|
| Direct labor hours | Answer
|
| Direct labor costs | Answer
|
| Machine hours | Answer
|
b. For each item in requirement a, determine the proper application of manufacturing overhead to Job 63, to which 56 direct labor hours, $375 of direct labor cost, and 100 machine hours have been charged.
Round answers to two decimal places, when applicable.
| Application base | Overhead applied to Job 63 |
|---|---|
| Direct labor hours | Answer
|
| Direct labor costs | Answer
|
| Machine hours | Answer |
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