d ooit PROBLEM 2-16 Plantwide Predetermined Overhead Rates; Pricing LO2-1, LO2-2, LO2–3 Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production Machine-hours required to support estimated production Fixed manufacturing overhead cost ... Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour ... 140,000 ... 70,000 ... $784,000 $2.00 $4.00 ...

d ooit PROBLEM 2-16 Plantwide Predetermined Overhead Rates; Pricing LO2-1, LO2-2, LO2–3 Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production Machine-hours required to support estimated production Fixed manufacturing overhead cost ... Variable manufacturing overhead cost per direct labor-hour Variable manufacturing overhead cost per machine-hour ... 140,000 ... 70,000 ... $784,000 $2.00 $4.00 ...

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter26: Cost Allocation And Activity-Based Costing

Section: Chapter Questions

Problem 26.2APR: Multiple production department factory overhead rates The management of Orange County Chrome...

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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?
Analyzing manufacturing cost accounts Fire Rock Company manufactures Designer paddle boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for June: In addition, the following information is available: a . Materials and direct labor were applied to the following jobs in June: b. factory overhead is applied to each job at a rate of 140% of direct labor cost c. The June 1 Work in Process balance consisted of two job as follows: Job No. Style Work In Process, June 1 201 T100 16,500 202 T200 44,000 Total 60,500 d. Customer jobs completed and units sold in June were as follows: Instructions 1. Determine the missing amounts associated with each letter. Provide supporting calculations by completing a table with the following headings: 2. Determine the June 50 balances for each of the inventory accounts and factor overhead.
Predetermined factory overhead rate Poehling Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be: The overhead costs will be assigned to procedures, based on the number of surgical room hours. Poehling Medical Center expects to use the operating room an average of eight hours per day, seven days per week. In addition, the operating room will be shut down two weeks per year for general repairs. A. Determine the predetermined operating room overhead rate for the year. B. Bill Harris had a five-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (A)? C. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were 67,250. Determine the overhead under- or overapplied for the period.
Multiple production department factory overhead rates The management of Orange County Chrome Company, described in Problem 1A, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Stamping Department 115,200 Plating Department 105,600 Total 220,800 Instructions 1. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department. 2. Determine the product factory- overhead costs, using the multiple production department rates in (1).
Multiple production department factory overhead rates The management of Orange County Chrome Company, described in Problem 1A, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Stamping Department 115,200 Plating Department 105,600 Total 220,800 Instructions 1. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department. 2. Determine the product factory- overhead costs, using the multiple production department rates in (1).
Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. Home Theater Speakers Wireless Speakers Wireless Headphones Total Sales 1,500,000 1,200,000 900,000 3,600,000 Cost of goods sold 1,050,000 720,000 810,000 2,580,000 Gross profit 450,000 480,000 90,000 1,020,000 Marketing expenses 600,000 120,000 72,000 792,000 Income from operations (150,000) 360,000 18,000 228,000 In addition, the controller interviewed the vice president of marketing, who provided the following insight into the company's three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently bunched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of income from operations to sales for each product. 2. Write a brief (one page) memo using the product profitability report and the calculations in (1) to make recommendations to management with respect to strategies for the three products.