As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200
As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount of over- or underapplied overhead in recent years. An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data have been gathered: ww mwwwww M M w Year 5 Year 4 Year 3 Year 2 Year 1 Actual overhead $ 790,000 $ 870,000 $ 935,000 $ 845,000 $ 760,000 Applied overhead 777,000 882,000 924,000 840,000 777,000 (Over-) underapplied overhead $ 13,000 $ (12,000) %24 $ 11,000 5,000 $ (17,000) Direct labor cost $3,885,000 $4,410,000 $4,620,000 $4,200,000 $3,885,000 Machine hours 93,000 104,000 111,000 100,400 91,600 8,49 840,000 1. Calculate a predetermined factory overhead rate for each alternative base. 2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined overhead rates you've developed. 3. Select a predetermined overhead rate that the company should use, and discuss the basis for your recommendation. 4,200
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter2: Job Order Costing
Section: Chapter Questions
Problem 2TIF
Related questions
Question
Transcribed Image Text:As an assistant cost accountant for Firewall Industries, you have been assigned to review the activity base for the
predetermined factory overhead rate. The president, JoJo Gunn, is concerned about the wide fluctuation in the amount
of over- or underapplied overhead in recent years.
An analysis of the company's operations and use of the current overhead rate (direct labor cost) has narrowed the
possible alternative overhead bases to direct labor cost and machine hours. For the past five years, the following data
have been gathered:
ww mwwwww M M w
Year 5
Year 4
Year 3
Year 2
Year 1
Actual overhead
$ 790,000
$ 870,000
$ 935,000
$ 845,000
$ 760,000
Applied overhead
777,000
882,000
924,000
840,000
777,000
(Over-) underapplied overhead
$ 13,000
$ (12,000)
%24
$ 11,000
5,000
$ (17,000)
Direct labor cost
$3,885,000
$4,410,000
$4,620,000
$4,200,000
$3,885,000
Machine hours
93,000
104,000
111,000
100,400
91,600
8,49
840,000
1. Calculate a predetermined factory overhead rate for each alternative base.
2. For each of the past five years, determine the over- or underapplied overhead, based on the two predetermined
overhead rates you've developed.
3. Select a predetermined overhead rate that the company should use, and discuss the basis for your
recommendation.
4,200
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning