7-41. Predetermined Overhead Rates: Ethical IssuesWanda Instrumentation produces navigational equipment for ships, aircraft (both staffed and drones), and land vehicles. The parts areproduced to specification by their customers. Depending on the customer and the type of job, the customer pays according to the terms ofeither a "fixed-price" contract (the price does not depend directly on the cost of the job) or a "cost-plus" contract (the price is equal to recordedcost plus a fixed fee). Wanda expects only two clients (Ivanhoe Aviation and Rolf's Shipyard) in Year 2. The work done for Ivanhoe will all bedone under cost-plus contracts, while the work done for Rolf's will all be done under fixed-price contracts.Selected budget data for Year 2 include the following:Direct labor cost ($000)....Direct materials cost ($000)Manufacturing overhead ($000).IvanhoeAviation$ 6601,980Rolf'sShipyard$2,3401,620Unassigned$6,480Requireda. Compute the predetermined rate assuming that Wanda Instrumentation uses direct labor costs to apply overhead.b. Compute the predetermined rate assuming that Wanda Instrumentation uses direct materials cost to apply overhead.c. Which allocation base will provide higher income for Wanda Instrumentation?d. Is it ethical to choose an allocation method based on which one leads to higher income for the firm?(LO 7-3, 5)

A predetermined overhead rate is a rate calculated at the beginning of the accounting period. the…

Answered: predetermined rate assuming that Wanda…

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

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San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateos predetermined overhead rates for 20x1 and 20x2 were based on the following estimates. Jim Cimino, San Mateos controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateos management team, Cimino plans to convert the companys income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateos 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc. Comparative Income Statement For the Years 20x1 and 20x2 San Mateos actual manufacturing data for the two years are as follows: The companys actual inventory balances were as follows: For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any over-or underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. 2. Describe two advantages of using variable costing rather than absorption costing. (CMA adapted)
1 Assume Delph uses departmental predetermined overhead rates based on machine-hours.a Compute the departmental predetermined overhead rates.b Compute the total manufacturing cost assigned to Job D-70 and Job C-200.c If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 andJob C-200?d What is Delph's cost of goods sold for the year? 2 Assume Delph chooses to combine its departmental rates from requirement 1 into a plantwide predetermined overhead rate based onmachine hours.a Compute the plantwide predetermined overhead rate.b Compute the total manufacturing cost assigned to Job D-70 and Job C-200.c If Delph establishes bid prices that are 150% of total manufacturing cost, what bid prices would it have established for Job D-70 andJob C-200?d What is Delph's cost of goods sold for the year? 3 What managerial insights are revealed by the computations that you performed in this problem? (Hint: Do the cost of…
What is the correct choice? Field Legal Services is trying to determine the variable and fixed elements of its service overhead. The following data have been collected from recent activity: Total Service Overhead Cases Worked March $22,900 112 April 20,800 98 May 26,400 138 The formula for total service overhead costs is a. $5,600 + $140 per case. b. $5,600 + $40 per case. c. $7,823 + $134.62 per case. d. $7,080 + $140 per case.
Please Help Solve Section Required D & E O’Leary Corporation manufactures special purpose portable structures (huts, mobile offices, and so on) for use at construction sites. It only builds to order (each unit is built to customer specifications). O’Leary uses a normal job costing system. Direct labor at O’Leary is paid $31 per hour, but the employees are not paid if they are not working on jobs. Manufacturing overhead is assigned to jobs by a predetermined rate on the basis of direct labor-hours. The company incurred manufacturing overhead costs during two recent years (adjusted for price-level changes using current prices and wage rates) as follows. Year 1 Year 2 Direct labor-hours worked 69,800 56,800 Manufacturing overhead costs incurred Indirect labor $ 2,872,000 $ 2,272,000 Employee benefits 1,047,000 852,000 Supplies 698,000 568,000 Power 655,000 550,000 Heat and light 143,600 143,600 Supervision 784,370…
Ethics and the Manager Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any underapplied or overapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead. To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the allocation base. Her conversation with the general…
Jansen Corp. has decided to implement an activity-based costing system for its in-house legal department. The legal department’s primary expense is professional salaries, which are estimated for associated activities as follows: Reviewing supplier or customer contracts (Contracts) P270,000 Reviewing regulatory compliance issues (Regulation) 375,000 Court actions (Court) 862,500 Management has determined that the appropriate cost allocation base for Contracts is the number of pages in the contract reviewed, for Regulation is the number of reviews, and for Court is number of hours of court time. For 2010, the legal department reviewed 450,000 pages of contracts, responded to 750 regulatory review requests, and logged 3,750 hours in court. How can the developed rates be used for evaluating output relative to cost incurred in the legal department? What alternative does the firm have to maintaining an internal legal department and how might this choice affect costs?
Jansen Corp. has decided to implement an activity-based costing system for its in-house legal department. The legal department’s primary expense is professional salaries, which are estimated for associated activities as follows: Reviewing supplier or customer contracts (Contracts) P270,000 Reviewing regulatory compliance issues (Regulation) 375,000 Court actions (Court) 862,500 Management has determined that the appropriate cost allocation base for Contracts is the number of pages in the contract reviewed, for Regulation is the number of reviews, and for Court is number of hours of court time. For 2010, the legal department reviewed 450,000 pages of contracts, responded to 750 regulatory review requests, and logged 3,750 hours in court. Determine the allocation rate for each activity in the legal department. What amount would be charged to a producing department that had 21,000 pages of contracts reviewed, made 27 regulatory review requests, and consumed 315 professional hours…
Ethics Case. At Symond Company, production workers in the Painting Department are paid on the basis of productivity. The labor time standard for a unit of production is established through periodic time studies conducted by Douglas Management Consultants. In a time actual time required to complete a specific task by a worker is observed. Allowances are then made for preparation time, rest periods, and cleanup time. Bill Carson is one of several veterans in the Painting Department .Bill is informed by Douglas that he will be used in the time study for the beginning of a new product . The findings will be the basis for establishing the labor time standard of the next 6 months.During the test, Bill deliberately slows his normal work pace in an effort to obtain a labor time standard that will be easy to meet. Because it is a new product, the Douglas representatives who conducted the test is unaware that Bill did not give the test his best effort.
The Bondi Company uses a predetermined overhead rate in applying overhead to production orders on a direct labor cost basis in Department A and on a machine hour basis in Department B. At the beginning of the year, the company made the following estimates: Dept. A Dept. B Direct labor cost $ 68,000 $ 48,000 Factory overhead $ 112,880 $ 53,720 Direct labor hours 6,800 9,800 Machine hours 2,800 15,800 What predetermined overhead rate would be used in Department A and Department B, respectively?
P4-14 Determining overhead rates, using direct labor cost, direct labor hour, and machine hour methods; determining job cost; computing underapplied and overapplied overhead Abbey Products Company is studying the results of applying fac- tory overhead to production. The following data have been used: estimated factory overhead, $60,000; estimated materials costs, $50,000; estimated direct labor costs, $60,000; estimated direct labor hours, 10,000; estimated machine hours, 20,000; work in pro- cess at the beginning of the month, none. The actual factory overhead incurred for November was $80,000, and the production statistics on November 30 are as follows:
The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month: The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes Job-order set up 33,000 Procurement and placement 360,000 Installation of winding system 195,000 An auto winding system is fitted with every watch Quality inspection (machine) 60,000 Quality inspection (manual) 21,000 Finishing 140,000 Hand-made finishing Packaging and delivery 44,250 The…
13. "At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually:" are considered a fixed cost are considered a variable cost depend on the scheduling of floor workers depend on the scheduling of production runs

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predetermined rate assuming that Wanda Instrumentation uses direct labor costs to apply overhead. predetermined rate assuming that Wanda Instrumentation uses direct materials cost to apply overhead.