Com Prob 5

722 WordsJan 10, 20153 Pages
COMPREHENSIVE PROBLEM 5 The Gilster Company This problem covers various topics from Chapters 15 through 21. The emphasis is on job costing, overhead allocation, target costing, and incremental decision making. 60 Strong Copyright © 2015 by McGraw-Hill Education All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. COMPREHENSIVE PROBLEM 5 THE GILSTER COMPANY 60 Minutes, Strong a. Plantwide overhead rate using direct labor hours: Overhead Rate = Total Expected Overhead Total Expected Direct Labor Hours = ($250,000 + $150,000 + $600,000) (35,000 hrs. + 15,000 hrs.) = $1,000,000 50,000 hrs. = $20 per direct labor hr. Manufacturing costs for Job 110: Direct materials…show more content…
Bid price for Job 110 using only the plantwide overhead rate: Bid price = 1.4 × $140,000 = $196,000 Bid price for Job 110 using separate overhead rates: Bid price = 1.4 × $108,000 = $151,200 The bids differ due to the differences in manufacturing overhead that are applied to the job using the two allocation methods. The overhead differences are due to (1) the difference in labor vs. machine hours required to complete the job and (2) the application of single vs. multiple overhead rates. The allocation scheme employed in part b would be recommended because the departmental overhead is due mostly to machine-related expenses and the use of multiple overhead rates allows for allocation that more closely resembles the use of resources. d. Applied overhead using machine hours: Plantwide [$5 × 52,500 (10,500 + 42,000) mach. hrs.] …………………………………… Dept. A ($15 × 10,500 mach. hrs.) ………………………………………………………… Dept. B ($15 × 42,000 mach. hrs.) ………………………………………………………… Total overhead applied ……………………………………………………………….. $262,500 157,500 630,000 $1,050,000 Actual overhead was $1,020,000 ($240,000 + $160,000 + $620,000), so the amount overapplied was $30,000 ($1,050,000 - $1,020,000). Correcting the overapplication by reducing cost of goods sold would increase net income for the current year by more than would have resulted if the correction was prorated between cost of goods sold and inventories. Copyright ©

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