5th Edition

ISBN: 9780134128528

Author: Karen W. Braun, Wendy M. Tietz

Publisher: PEARSON

Concept explainers

Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.

Job Costing

Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing …

ABC Costing

Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In compari…

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Textbook Question

Chapter 4, Problem 4.19AE

Compare traditional and departmental cost allocations (Learning Objective 1)

Sanderson’s Fine Furnishings manufactures upscale custom furniture. Sanderson’s currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,000,000 of manufacturing overhead to individual jobs. However, Margaret Garmon, owner and CEO, is considering refining the company’s costing system by using departmental overhead rates. Currently, the Machining Department incurs $660,000 of manufacturing overhead, while the Finishing Department incurs $340,000 of manufacturing overhead. Garmon has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department.

The Sanderson’s plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of 5 DL hours throughout the entire production process. Job 450 incurred 3 MH in the Machining Department and 4 DL hours in the Finishing Department (the other DL hour occurred in the Machining Department). Job 455 incurred 4 MH in the Machining Department and 3 DL hours in the Finishing Department (the other two DL hours occurred in the Machining Department).

Requirements

1. Compute the plantwide overhead rate assuming that Sanderson’s expects to incur 20,000 total DL hours during the year.
2. Compute departmental overhead rates assuming that Sanderson’s expects to incur 15,000 MH in the Machining Department and 17,000 DL hours in the Finishing Department during the year.
3. If Sanderson’s continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to Job 450 and Job 455?
4. If Sanderson’s uses departmental overhead rates, how much manufacturing overhead would be allocated to Job 450 and Job 455?
5. Based on your answers to Requirements 3 and 4, does the plantwide overhead rate overcost or undercost either job? Explain. If Sanderson’s sells its furniture at 125% of cost, will its choice of allocation systems affect product pricing? Explain.

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Chapter 4, Problem 4.18SE

Chapter 4, Problem 4.20AE

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Chapter 4 Solutions

Managerial Accounting (5th Edition)

Ch. 4 - Understanding key terms (Learning Objectives 1, 2,...Ch. 4 - Use departmental overhead rates to allocate...Ch. 4 - Compute departmental overhead rates (Learning...Ch. 4 - Prob. 4.4SE Ch. 4 - Prob. 4.5SE Ch. 4 - Calculate a job cost using ABC (Learning Objective...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Classifying costs within the cost hierarchy...Ch. 4 - Determine the usefulness of refined costing...Ch. 4 - Prob. 4.10SE Ch. 4 - Identifying costs as value-added or...Ch. 4 - Identify lean production characteristics (Learning...Ch. 4 - Identify the DOWNTIME activities at a manufacturer...Ch. 4 - Prob. 4.14SE Ch. 4 - Classifying costs of quality (Learning Objective...Ch. 4 - Quality initiative decision (Learning Objective 5)...Ch. 4 - Assess the impact of a quality initiative...Ch. 4 - Identify ethical standards violated (Learning...Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Compute activity rates and apply to jobs (Learning...Ch. 4 - Apply activity cost allocation rates (Learning...Ch. 4 - Using ABC to bill clients at a service firm...Ch. 4 - Compare traditional and ABC allocations at a...Ch. 4 - Compare traditional and ABC allocations on a job...Ch. 4 - Use ABC to allocate manufacturing overhead...Ch. 4 - Continuation of E4-25A: Determine product...Ch. 4 - Prob. 4.27AE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.29AE Ch. 4 - Compare traditional and departmental cost...Ch. 4 - Prob. 4.31BE Ch. 4 - Prob. 4.32BE Ch. 4 - Prob. 4.33BE Ch. 4 - Compare traditional and ABC cost allocations at a...Ch. 4 - Prob. 4.35BE Ch. 4 - Prob. 4.36BE Ch. 4 - Prob. 4.37BE Ch. 4 - Prob. 4.38BE Ch. 4 - Classify costs and make a quality-initiative...Ch. 4 - Prob. 4.40BE Ch. 4 - Prob. 4.41AP Ch. 4 - Use ABC to compute full product costs (Learning...Ch. 4 - Prob. 4.43AP Ch. 4 - Prob. 4.44AP Ch. 4 - Prob. 4.45AP Ch. 4 - Prob. 4.46BP Ch. 4 - Prob. 4.47BP Ch. 4 - Comprehensive ABC implementation (Learning...Ch. 4 - Using ABC in conjunction with quality decisions...Ch. 4 - Comprehensive ABC (Learning Objectives 2 3)...Ch. 4 - Prob. 4.51SC Ch. 4 - Discussion Questions 1. Explain why departmental...Ch. 4 - ABC in Real Companies Choose a company in any of...Ch. 4 - Value-Added versus Non-Value-Added at a Restaurant...Ch. 4 - Ethics involved with ABC and hazardous waste costs...

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Solution Summary: The author calculates the plant-wide overhead rate if S expects to incur 20,000 total DL hours, which is 50 per direct labor hour.

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