Garza Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department s predetermined overhead rate is based on machine hours and the Customizing Department s predetermined overhead rate is based on direct labor hours. At the beginning of the current year, the company had made the following estimates: Casting Customizing Machine-hours Direct labor-hours 29,000 10,000 19,000 9,000 Total fixed manufacturing overhead cost $118,900 $39,600 Variable manufacturing overhead per machine-hour $1.00 Variable manufacturing overhead per direct labor hour $3.20 The estimated total manufacturing overhead for the Customizing Department is closest to: A. $179,700 B. $28,800 C. $68,400 D. $39,600

Garza Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department s predetermined overhead rate is based on machine hours and the Customizing Department s predetermined overhead rate is based on direct labor hours. At the beginning of the current year, the company had made the following estimates: Casting Customizing Machine-hours Direct labor-hours 29,000 10,000 19,000 9,000 Total fixed manufacturing overhead cost $118,900 $39,600 Variable manufacturing overhead per machine-hour $1.00 Variable manufacturing overhead per direct labor hour $3.20 The estimated total manufacturing overhead for the Customizing Department is closest to: A. $179,700 B. $28,800 C. $68,400 D. $39,600

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 30P: Primera Company produces two products and uses a predetermined overhead rate to apply overhead....

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Lansing. Inc., provided the following data for its two producing departments: Machine hours are used to assign the overhead of the Molding Department, and direct labor hours are used to assign the overhead of the Polishing Department. There are 30,000 units of Form A produced and sold and 50,000 of Form B. Required: 1. Calculate the overhead rates for each department. 2. Using departmental rates, assign overhead to live two products and calculate the overhead cost per unit. How does this compare with the plantwide rate unit cost, using direct labor hours? 3. What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form B and the direct labor hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overhead cost per unit for each product using departmental rates, and compare with the plantwide rate unit costs calculated in Requirement 2. What can you conclude from this outcome?
San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateos predetermined overhead rates for 20x1 and 20x2 were based on the following estimates. Jim Cimino, San Mateos controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateos management team, Cimino plans to convert the companys income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateos 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc. Comparative Income Statement For the Years 20x1 and 20x2 San Mateos actual manufacturing data for the two years are as follows: The companys actual inventory balances were as follows: For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any over-or underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. 2. Describe two advantages of using variable costing rather than absorption costing. (CMA adapted)
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