The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400 to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $26,177 $766.177 $740,000 $26.397

The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400 to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $26,177 $766.177 $740,000 $26.397

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Description: The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for thecoming year. The Corporation's controller has provided an exa

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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1. SIP Inc. (SIP) is plastic injection molding company specializing in front-end grilles. Bilchew Numbers wants to look at using an activity-based costing system. For 2021, he estimated overhead costs of $12,560,000 to be allocated using an activity-based costing system (see the table below). Bilchew also estimated that direct labour will be paid at the rate of $15 per hour. Cost Driver Activity Cost Pool Estimated Cost Total Quantity of Allocation Base (allocation base) Indirect materials $ 1,450,000 Direct materials $6,590,910 Indirect labour and 2,000,000 Direct labour 100,000 hours supervision Utilities 3,598,000 Power 20,000 kilowatt-hours (kWh) consumption Inspection 4,200,000 Inspection 15,000 inspections Depreciation 1,312,000 Machine usage 160,000 machine-hours $12,560,000 During January 2021, Bilchew worked on two jobs, which consumed the following resources: Job 2021-A1 Job 2021-A2 Direct materials cost $ 6,500 $ 22,000 Direct labour cost $42,000 $165,000 Machine-hours 1,800…
Required: 1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? 2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?
Academy allocates support dept costs to production departments befoe establishing predetermined overhead rates for use in product costing. Assembly uses machine hours as a base and expects to use 90,000 MH this year. Testing uses direct labor hours and expects to use 160,000 DLH this year. Academy allocates support dept. costs to Assembly and Testing before their pre-determined rate. Support costs are allocated to productive depts. based on time of service while IT costs are allocated based on IT hours. Dept EngSupport IT Assembly Testing Total Dept Overhead $ 2,000,000 $ 1,000,000 $ 3,000,000 $ 2,000,000 $ 8,000,000 Time of Service 40 50 700 450 1,240 IT Hours 1,000 2,000 9,000 11,000 23,000 A. Complete a cost allocation table using the step method.…
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An accountant has been monitoring the overall indirect service costs incurred at their company based on the number of labour hours worked. They accept that the costs follow a uniform, regular pattern so decide to use the High-Low method to calculate the Variable Costs and then the fixed costs. The have found the during the month when the lowest hours were worked ( 2083 hours) that the service costs in that low activity month was $14705. In the month when the highest hours were worked ( 4803 hours) the service costs were $18998. Calculate the Variable Cost using the high-low method. Note: Do not input the $ sign, just the decimal number to two decimal places
Let's suppose that you are making automobiles. In July there is a plant shutdown for two weeks. Factory labor, both direct (production line workers) and indirect (factory supervisor), take mandatory vacation during those two weeks. Explain, the mechanics of calculating a Predetermined Overhead Rate for this year. Which allocation base (or bases) may be used to apply overhead cost to the automobiles produced? Should the cost of the factory labor vacations be spread to all automobiles produced during the entire year? Would the cost of the vacations for the Sales and Human Resource departments also be allocated to the automobiles? What cost type of cost are these as compared to the factory worker vacation costs? How do vacation costs for Sales and HR departments flow through the Income Statement?
Mary Ellis owns a small manufacturing company and would like to develop more accurate estimates for overhead expenses when making planning decisions. She is pretty sure that overhead is a mixed cost that varies with direct labour-hours but she would like to do a proper analysis to determine the variable and fixed components. She collected the following information for the past 12 months on direct labour-hours incurred and total overhead expenses. Total Overhead Costs $44,000 Month January Direct Labour-Hours 1,500 February 1,680 $ 47,200 March 1,000 $ 48,000 April 2,520 $ 51,200. May 2,700 $ 53,600 June 3,300 $ 56,000 July 3,900 $ 59,200 August 4,500 $ 61,600 September 4,200 $ 60,000 October 2,700 $ 54,400 November 1,800 $49,600 December 3,900 $ 58,400 Required: 1. Using the least-squares regression method, estimate the variable overhead cost per direct labour-hour and the total fixed overhead cost per month. (Round Fixed cost to the nearest whole doller amount and the Variable cost…
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Maxey & Sons manufactures two types of storage cabinets-Type A and Type B—and applies manufacturing overhead to all units at the rate of $140 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Descriptions The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities' three respective cost drivers, follow. Setups Machine hours Outgoing shipments Туре А 160 56,000 200 Туре А 28,000 $38 43 Required 1 Required 2 Required 3 Туре В Unit manufacturing costs 120 78,750 150 The firm's total overhead of $18,865,000 is subdivided as follows: manufacturing setups, $4,116,000; machine processing, $11,319,000 and product shipping, $3,430,000. Required: 1. Compute…
A company uses job-order costing with manufacturing overhead (MOH) applied on the basis of machine hours (MHs). In the past, the company's pre-determined overhead rate (POHR) has fluctuated from period to period due primarily to differences in the expected usage of their machine. For this period, the machine has a capacity of 450 MHs, but based on anticipated production, only 375 MHs are expected to be required. The company's MOH is relatively fixed, estimated at $11,250 for both levels of MHs. At the end of the period, actual production used 413 MHs and total actual MOH amounted to $10.500. 1. How much less MOH would be applied during the month using capacity MHs rather than the traditional method?
(Appendix 3A) Method of Least Squares Farnsworth Company has gathered data on its overhead activities and associated costs for the past 10 months. Tracy Heppler, a member of the controller's department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows: Month Receiving Orders Receiving Cost 1 1,000 $18,000 2 700 15,000 3 1,500 28,000 4 1,200 17,000 5 1,300 25,000 6 1,100 21,000 7 1,600 29,000 8 1,400 24,000 9 1,700 27,000 10 900 16,000 Suppose that Tracy has gathered two more months of data: Month Receiving Orders Receiving Cost…
SmokeCity, Inc., manufactures barbeque smokers. Based on past experience, SmokeCity has found that its total annual overhead costs can be represented by the following formula: Overhead cost = $520,475 + $1.49X, where X equals number of smokers. Last year, SmokeCity produced 19,100 smokers. Actual overhead costs for the year were as expected. Required: 1. What is the driver for the overhead activity? For questions 2-4, Enter the final answers rounded to the nearest dollar. 2. What is the total overhead cost incurred by SmokeCity last year? $fill in the blank 2 3. What is the total fixed overhead cost incurred by SmokeCity last year? $fill in the blank 3 4. What is the total variable overhead cost incurred by SmokeCity last year? $fill in the blank 4 For questions 5-7, round your answers to the nearest cent. Use those rounded figures in subsequent computations, if necessary. 5. What is the overhead cost per unit produced? $fill in the blank 5 per unit 6. What is the fixed overhead cost…