To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages.Tallis has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:Salaries$200 000Phone2 000Depreciation on equipment5 000Utilities2 000Rent and property taxes9 000Other department costs12 000Total$230 000Required:1. Calculate the profit per package and the total profitability of each of the three corporate packages.2. Compare the profitability of the three corporate packages.3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a bettermethod?4. Suggest what actions the company could take in regard to the three corporate packages. C6.43 Job costing; department overhead cost allocation: tour operator LO 6.72Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for theannual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments ofthe business-family, seniors and corporate-and it seems that the corporate department is the source of the problem.Jack has asked you to assist him to look more closely at the three packages offered by the corporate department, to see which holiday packages arePage 285profitable and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for lastyear are as follows:Bali AdventureThailand DiscoveryMalaysian OrienteeringNumber of packages sold102010Number of people per package568Revenue per person$18 000$12 000$14 000Direct cost per package:Tour leader$ 5 000$12 000$9 000Tour assistant2 0003 0006 000Air travel28 00030 00032 000Accommodation15 00026 00024 000Equipment hire4 0009 000Meals18 00015 0008 000To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages.Tallis has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:

Profitability of the company is required to be measured so that the company knows and determines…

1. Calculate the profit per package and the total profitability of each of the three corporate packages. 2. Compare the profitability of the three corporate packages. 3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method? 4. Suggest what actions the company could take in regard to the three corporate packages.

1. Calculate the profit per package and the total profitability of each of the three corporate packages. 2. Compare the profitability of the three corporate packages. 3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method? 4. Suggest what actions the company could take in regard to the three corporate packages.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter10: Accounting Systems For Manufacturing Operations

Section: Chapter Questions

Problem 10.4.2C: Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost...

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Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What do you think is a possible solution?
Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What did the engineer mean about the large overhead rate being a disadvantage when plating bids and seeking new business?
42. Summer Class Corp. operates two producing departments, C and D, and two service departments, E and F. The overhead before allocation of service department costs, together with the usage of services from the service departments, is: Overhead Before Allocation of Service Services Provided by Department Department Costs E F Producing: C...................................................................... P18,000 30% ‑- D...................................................................... 29,000 30% 80% Service:…
H4. At Vol Corporation, production is started in the fab department. The work is then transferred to the finishing department, where goods are completed and then transferred to the finished goods storeroom. Data about the company’s costs during September 20X1 follows: Material costs placed into production Fab department $ 40,100.00 Finishing department 5,100.00 Direct labor costs Fab department 112,000.00 Finishing department 18,000.00 Taxes withheld from employees’ earnings Social security tax withheld 8,060.00 Medicare tax withheld 1,885.00 Federal income tax withheld 19,500.00 Overhead costs Fab department 44,800.00 Finishing department 7,200.00 During the month, products costing $167,000 were transferred from the fab department to the finishing department; goods costing $193,000 were transferred from the finishing department to finished goods inventory; and goods that cost $154,400 were sold on account for $201,000. Required: Give the journal entries on September 30 to summarize…
Harrison , Inc : Advertising Costs President's Salary Tax Payments Factory Repair and Maintenance Direct Materials Used $10,600; 230000; 12, 500 920 Direct Labor Administrative Salaries 27, 500; 36, 22000 How much were Harrison's product costs ? Select one : a . $64,420 Ob . $86,420 . $65,620 Od . $339,520
1) The following information relates to Webster Inc.: Advertising Costs $10,270 Administrative Salaries 24,700 Delivery Vehicle Depreciation 1,027 Factory Repair and Maintenance 910 Indirect Labor 11,700 Indirect Materials 9,360 Manufacturing Equipment Depreciation 2,080 Office Rent 61,100 President's Salary 40,300 Sales Revenue 450,000 Sales Salary 4,500 How much were Webster's period costs? A) $141,897 B) $474,050 C) $615,947 D) $61,503
36. LO.3 (Activity analysis) Management at Glover & Lamb Inc. is concerned about controlling factory labor-related costs. Th e following summary is the result of an analy-sis of the major categories of labor costs for 2010:Category AmountBase wages $63,000,000Health-care benefi ts 10,500,000Payroll taxes 5,018,832Overtime 8,697,600Training 1,875,000Retirement benefi ts 6,898,500Workers’ compensation 1,199,940Following are some of the potential cost drivers identifi ed by the company for labor-related costs, along with their 2010 volume levels:Potential Activity Driver 2010 Volume LevelAverage number of factory employees 2,100Number of new hires 300Number of regular labor hours worked 3,150,000Number of overtime hours worked 288,000Total factory wages paid $71,697,600Volume of production in units 12,000,000Number of production process changes 600Number of production schedule changes 375a. For each cost pool, determine the cost per unit of the activity driver using the activ-ity…
LO.1 & LO.3 (Plant vs. departmental OH rates) Red River Farm Machine makes a wide variety' of products, all of which must be processed in the Cutting and Assembly departments. For the year 2013, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted direct labor and machine hours are as follows: Cutting Assembly Budgeted direct labor hours 27,000 3,000 Budgeted machine hours 2,100 65,800 Two products made by Red River are the RW22SKI and the SD45ROW. The following cost and production time information on these items has been gathered: RW22SKI SD45ROW Direct material $34.85 $19.57 Direct labor rate in Cutting $20.00 $20.00 Direct labor rate in Assembly $8.00 $8.00 Direct labor hours in Cutting 6.00 4.80 Direct labor hours in Assembly 0.03 0.05 Machine hours in Cutting 0.06 0.15 Machine hours in Assembly 5.90 9.30 a. What is the plantwide predetermined…
LO.1 & LO.3 (Plant vs. departmental OH rates) Red River Farm Machine makes a wide variety' of products, all of which must be processed in the Cutting and Assembly departments. For the year 2013, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted direct labor and machine hours are as follows: Cutting Assembly Budgeted direct labor hours 27,000 3,000 Budgeted machine hours 2,100 65,800 Two products made by Red River are the RW22SKI and the SD45ROW. The following cost and production time information on these items has been gathered: RW22SKI SD45ROW Direct material $34.85 $19.57 Direct labor rate in Cutting $20.00 $20.00 Direct labor rate in Assembly $8.00 $8.00 Direct labor hours in Cutting 6.00 4.80 Direct labor hours in Assembly 0.03 0.05 Machine hours in Cutting 0.06 0.15 Machine hours in Assembly 5.90 9.30 d. A competitor manufactures a product…
12 EB12. 4.7 A company has the following transactions during the week. • Purchase of $3,000 raw materials inventory • Assignment of $700 of raw materials inventory to Job 7 • Payroll for 10 hours and $3,000 is assigned to Job 7 • Factory depreciation of $1,750 • Overhead applied at the rate of $200 per hour What is the cost assigned to Job 7 at the end of the week?
10. Ramona Diaz Ltd. produces two products, P1 and P2, at its two departments: Machining and Assembly, as shown in the table below. The accountant tries to allocate overhead costs to the two products. If the accountant decides to allocate overhead based on labor hours, what is P1’s share of the total overhead costs? $180,000 $200,000 $220,000 $240,000
7-7 Calculating traditional and ABC overhead rates (LO 2) Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $1,140,000 is based on 40,000 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pools. Cost Pool Expected Cost Expected Activities Product assembly $ 600,000 40,000 machine hours Machine setup and calibration 320,000 2,000 setups Product inspection 90,000 1,500 batches Raw materials storage 130,000 500,000 pounds $1,140,000 Required a.Calculate the company's overhead rate based on machine hours. b.Calculate the company's overhead rates using the proposed activity-based costing pools.