The Brightline Manufacturing Company produces floor lamps and ceiling lights. The company has two departments: Assembly and Packaging. The overhead budget for the Assembly Department is $300,000, using 150,000 direct labor hours. The overhead budget for the Packaging Department is $200,000 using 50,000 direct labor hours.

The Brightline Manufacturing Company produces floor lamps and ceiling lights. The company has two departments: Assembly and Packaging. The overhead budget for the Assembly Department is $300,000, using 150,000 direct labor hours. The overhead budget for the Packaging Department is $200,000 using 50,000 direct labor hours.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 6PB: Box Springs. Inc., makes two sizes of box springs: queen and king. The direct material for the queen...

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Cozy, Inc., manufactures small and large blankets. It estimates $950,000 in overhead during the manufacturing of 360,000 small blankets and 120,000 large blankets. What is the predetermined overhead rate if a small blanket takes 2 hours of direct labor and a large blanket takes 3 hours of direct labor?
Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 20X1: During 20X1, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred: Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates. Required: 1. Prepare a performance report for Marstons manufacturing costs in the current year. 2. Assume that one of the products produced by Marston is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost. 3. One of Marstons managers said the following: Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at 10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of 30,000 per year. Also, I know that fuel costs about 0.25 per move. Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively. Based on these comments, explain how this additional information can help Marston better manage its costs. (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)
Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse: Direct machine hours were estimated as follows: In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows: a. Determine the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base. b. Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.
Handy Leather, Inc., produces three sizes of sports gloves: small, medium, and large. A glove pattern is first stencilled onto leather in the Pattern Department. The stenciled patterns are then sent to the Cut and Sew Department, where the glove is cut and sewed together. Handy Leather uses the multiple production department factory overhead rate method of allocating factory overhead costs. Its factory overhead costs were budgeted as follows: The direct labor estimated for each production department was as follows: Direct labor hours are used to allocate the production department overhead to the products. The direct labor hours per unit for each product for each production department were obtained from the engineering records as follows: a. Determine the two production department factory overhead rates. b. Use the two production department factory overhead rates to determine the factory overhead per unit for each product.
Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin is $25 per unit and $40 s used in direct labor, while the direct material for the double is $40 per unit, and the labor cost is $50 per unit. Box Springs estimates it will make 5,000 twins and 9,000 doubles in the next year. It estimates the overhead for each cost pool and cost driver activities as follows: How much does each unit cost to manufacture?
Frenchys makes two types of scarves: polyester (poly) and silk. There are two cost pools: setup, with an estimated $120,000 in overhead, and inspection, with $30,000 in overhead. Poly is estimated to have 800,000 setups and 450,000 inspections, while silk has 400,000 setups and 150,000 inspections. How much overhead is applied to each product?
TyeDye Lights makes two products: Party and Holiday. It takes 80,900 direct labor hours to manufacture the Party Line and 93,500 direct labor hours to manufacture the Holiday Line. Overhead consists of $225,000 in the machine setup cost pool and $149,960 in the packaging cost pool. The machine setup pool has 52,000 setups for the Party product and 98,000 setups for the Holiday product. The packaging cost pool has 26,000 parts in the Party product and 39,200 parts for the Holiday product. Using the traditional cost method of direct labor hours, what is the predetermined overhead rate? A. $1.50 per direct labor hour B. $2.15 per direct labor hour C. $2.30 per direct labor hour D. $3.80 per direct labor hour
JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT estimated variable factory overhead of 600,000 and fixed factory overhead of 400,000. JoyT uses a standard costing system, and factory overhead is allocated to units produced using standard direct labor hours. The level of activity budgeted for this year was 10,000 direct labor hours, and JoyT used 10,300 actual direct labor hours. Based on the output accomplished during this year, 9,900 standard direct labor hours should have been used. Actual variable factory overhead was 596,000, and actual fixed factory overhead was 410,000 for the year. Based on this information, the variable factory overhead controllable variance for JoyT for this year was: a. 24,000 unfavorable. b. 2,000 unfavorable. c. 4,000 favorable. d. 22,000 favorable.
Stacks manufactures two different levels of hockey sticks: the Standard and the Slap Shot. The total overhead of $600,000 has traditionally been allocated by direct labor hours, with 400,000 hours for the Standard and 200.000 hours for the Slap Shot. After analyzing and assigning costs to two cost pools, it was determined that machine hours is estimated to have $450.000 of overhead, with 30,000 hours used on the Standard product and 15,000 hours used on the Slap Shot product. It was also estimated that the inspection cost pool would have $150,000 of overhead, with 25,000 hours for the Standard and 5,000 hours for the Slap Shot. What is the overhead rate per product, under traditional and under ABC costing?
Johnston Company cleans and applies powder coat paint to metal items on a job-order basis. Johnston has budgeted the following amounts for various overhead categories in the coming year. In the coming year, Johnston expects to powder coat 120,000 units. Each unit takes 1.3 direct labor hours. Johnston has found that supplies and gas (used to run the drying ovensall units pass through the drying ovens after powder coat paint is applied) tend to vary with the number of units produced. All other overhead categories are considered to be fixed. (Round all overhead rates to the nearest cent.) Required: 1. Calculate the number of direct labor hours Johnston must budget for the coming year. Calculate the variable overhead rate. Calculate the total fixed overhead for the coming year. 2. Prepare an overhead budget for Johnston for the coming year. Show the total variable overhead, total fixed overhead, and total overhead. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent). 3. What if Johnston had expected to make 118,000 units next year? Assume that the variable overhead per unit does not change and the total fixed overhead amounts do not change. Calculate the new budgeted direct labor hours and prepare a new overhead budget. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent).
Bach Instruments Inc. makes three musical instruments: flutes, clarinets, and oboes. The budgeted factory overhead cost is 2,948,125. Overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgeted production volume and direct labor hours per unit: a. Determine the single plant wide overhead rate. b. Use the overhead rate in (a) to determine the amount of total and per-unit overhead allocated to each of the three products, rounded to the nearest dollar.
Scrumptious Snacks Inc. manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period: Factory overhead is allocated to the three products on the basis of processing hours. The Products had the following production budget and processing hours per case: a. Determine the single plantwide factory overhead rate. b. Use the overhead rate in (a) to determine the amount of total and per-case overhead allocated to each of the three products under generally accepted accounting principles.