Introduction To Managerial Accounting
Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 2, Problem 1AE

This Excel worksheet relates to the Dickson Company example that is summarized in Exhibit 2-5. Download the workbook containing this form from Connect, where you will also find instructions about how to use this worksheet form.

Chapter 2, Problem 1AE, This Excel worksheet relates to the Dickson Company example that is summarized in Exhibit 2-5. , example  1

Chapter 2, Problem 1AE, This Excel worksheet relates to the Dickson Company example that is summarized in Exhibit 2-5. , example  2

Chapter 2, Problem 1AE, This Excel worksheet relates to the Dickson Company example that is summarized in Exhibit 2-5. , example  3

You should proceed to the requirements below only after completing your worksheet.
Required:
1. Check your worksheet by changing the total fixed manufacturing overhead cost for the Milling Department in the Data area to $300,000, keeping all of the other data the same as in the original example. If your worksheet is operating properly, the total cost of Job 407 should now be $2,350. If you do not get this answer, find the errors in your worksheet and correct them.
How much is the selling price of Job 407? Did it change? Why or why not?

Expert Solution & Answer
Check Mark
To determine

Selling price: The cost incurred by selling the product in the market is known as the selling price.

Fixed overhead cost: The cost which does not vary even though there are changes in the business activity. Some of the costs which come under fixed overhead cost are rent, insurance, salaries etc.

Determine the missing figures. Once the figures are obtained, what is the change in the selling price if the fixed overhead cost is reduced to $300000 provided the total cost of Job 407 should be $2350.

Answer to Problem 1AE

Solution: There is a fall in the selling price since there is a change in the fixed overhead cost.

Explanation of Solution

This calculation should be done in the work book and it is explained below,

Part -1- Finding the missing figures:

    Chapter 2: Applying Excel
    Data
    Mark-up on job cost75%
    Department
    MillingAssembly
    1Machine hours600003000
    2Direct Labour Hours800080000
    3Total fixed manufacturing overhead cost$3,90,000.00$5,00,000.00
    4Variable manufacturing overhead per machine hour$2.00$ -
    5Variable manufacturing overhead per direct labour hour$ -$3.75
    Cost Summary for job 407Department
    MillingAssembly
    6Machine hours904
    7Direct Labour Hours520
    8Direct Materials$800.00$370.00
    9Direct Labour cost$70.00$280.00
    Enter a formula into each of the cells marked with? below
    Step 1: Calculate the estimated total manufacturing overhead cost for each department
    MillingAssembly
    10Total fixed manufacturing overhead (given)$3,90,000.00$5,00,000.00
    11Variable manufacturing overhead per machine hour or direct labour hour (given)$2.00$3.75
    12Total machine hours or direct labour hours (given)6000080000
    13Total Variable manufacturing overhead (11 x 12)$1,20,000.00$3,00,000.00
    14Total manufacturing overhead (10 + 13)$5,10,000.00$8,00,000.00
    Step 2: Calculate the pre-determined overhead rate in each department
    MillingAssembly
    15Total manufacturing overhead (14)$5,10,000.00$8,00,000.00
    16Total machine hours or direct labour hours (given)6000080000
    17Pre-determined overhead rate per machine hour or direct labour hour (15 divided by 16)$8.50$10.00
    Step 3: Calculate the amount of overhead applied to both departments to Job 407
    MillingAssembly
    18Pre-determined overhead rate per machine hour or direct labour hour (17)$8.50$10.00
    19Machine hours or direct labour hours for the job (given)9020
    20Manufacturing overhead applied (18 x 19)$ 765.00$ 200.00
    Step 4: Calculate the total job cost for Job 407
    MillingAssembly
    21Direct Materials (given)$800.00$370.00
    22Direct labour cost (given)$70.00$280.00
    23Manufacturing overhead applied (20)$765.00$200.00
    24Total cost of Job 407 (21 + 22 + 23)$1,635.00$850.00
    Total cost of Job 407 (Milling + Assembly)$2,485.00
    Step 5: Calculate the selling price for Job 407
    MillingAssembly
    25Total cost of Job 407 ( 24)$1,635.00$850.00
    26Mark-up (24 x 75%)$1,226.25$637.50
    27Selling price of Job 407 (25 + 26)$2,861.25$1,487.50
    Total Selling Price (Milling + Assembly)$4,348.75

Part 2: To find the selling price of the job 407 after changes in the fixed overhead cost.

    Chapter 2: Applying Excel
    Data
    Mark-up on job cost75%
    Department
    MillingAssembly
    1Machine hours600003000
    2Direct Labour Hours800080000
    3Total fixed manufacturing overhead cost$3,90,000.00$5,00,000.00
    4Variable manufacturing overhead per machine hour$2.00$ -
    5Variable manufacturing overhead per direct labour hour$ -$3.75
    Cost Summary for job 407Department
    MillingAssembly
    6Machine hours904
    7Direct Labour Hours520
    8Direct Materials$800.00$370.00
    9Direct Labour cost$70.00$280.00
    Enter a formula into each of the cells marked with ? Below
    Step 1: Calculate the estimated total manufacturing overhead cost for each department
    MillingAssembly
    10Total fixed manufacturing overhead (given)$3,00,000.00$5,00,000.00
    11Variable manufacturing overhead per machine hour or direct labour hour (given)$2.00$3.75
    12Total machine hours or direct labour hours (given)6000080000
    13Total Variable manufacturing overhead (11 x 12)$1,20,000.00$3,00,000.00
    14Total manufacturing overhead) (10 + 13)$4,20,000.00$8,00,000.00
    Step 2: Calculate the pre-determined overhead rate in each department
    MillingAssembly
    15Total manufacturing overhead (14)$4,20,000.00$8,00,000.00
    16Total machine hours or direct labour hours (given)6000080000
    17Pre-determined overhead rate per machine hour or direct labour hour (15 divided by 16)$7.00$10.00
    Step 3: Calculate the amount of overhead applied to both departments to Job 407
    MillingAssembly
    18Pre-determined overhead rate per machine hour or direct labour hour (17)$7.00$10.00
    19Machine hours or direct labour hours for the job (given)9020
    20Manufacturing overhead applied (18 x 19)$630.00$200.00
    Step 4: Calculate the total job cost for Job 407
    MillingAssembly
    21Direct Materials (given)$800.00$370.00
    22Direct Labour cost (given)$70.00$280.00
    23Manufacturing overhead applied (20)$630.00$200.00
    24Total cost of Job 407 (21 + 22 + 23)$1,500.00$850.00
    Total cost of Job 407 (Milling + Assembly)$2,350.00
    Step 5: Calculate the selling price for Job 407
    MillingAssembly
    25Total cost of Job 407 ( 24)$1,500.00$850.00
    26Mark-up (14 x 75%)$1,125.00$637.50
    27Selling price of Job 407 (25 + 26 )$2,625.00$1,487.50
    28Total Selling Price of Job 407 (Milling + Assembly)$4,112.50
Conclusion

The selling price of the Job 407 reduces from $4348.75 to $4112.50 since selling price is based on cost plus mark-up method. Hence, it is directly affected by the fall in Fixed Overhead cost.

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Chapter 2 Solutions

Introduction To Managerial Accounting

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