Financial & Managerial Accounting
Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 26, Problem 26.4EX

(a)

To determine

Single plant-wide factory overhead rate: The rate at which the factory or manufacturing overheads are allocated to products is referred to as single plant-wide factory overhead rate.

Formula to compute single plant-wide overhead rate:

Single plant-wide overhead rate} = Total budgeted factory overheadTotal budgeted plant-wide allocation base 

To compute: The single plant-wide overhead rate using direct labor hours (DLH) as the allocation base

(a)

Expert Solution
Check Mark

Explanation of Solution

Compute single plant-wide overhead rate using DLH as the allocation base.

Step 1: Compute the total number of direct labor hours (DLH) budgeted.

Types of Products Number of Budgeted Units × Number of DLH Per Unit = Total Number of Budgeted DLH
Pistons 7,200 units × 0.20 DLH = 1,440 DLH
Valves 28,800 units × 0.15 DLH = 4,320 DLH
Cams 1,200 units × 0.32 DLH = 384 DLH
Total number of budgeted DLH 6,144 DLH

Table (1)

Step 2: Compute single plant-wide overhead rate using DLH as the allocation base.

Single plant-wide overhead rate} = Total budgeted factory overheadTotal budgeted plant-wide allocation base$184,3206,144 DLH= $30 per DLH

Note: Refer to Table (1) for value and computation of total number of budgeted DLH.

(b)

To determine

To compute: The factory overhead allocated per unit of each product, and direct labor cost per unit.

(b)

Expert Solution
Check Mark

Explanation of Solution

Compute the factory overhead allocated per unit for each product.

Types of Products Single Plant-Wide Overhead Rate × Number of DLH Per Unit of Each Product = Factory Overhead Per Unit
Pistons $30 per DLH × 0.20 DLH = $6.00 per unit
Valves $30 per DLH × 0.15 DLH = $4.50 per unit
Cams $30 per DLH × 0.32 DLH = $9.60 per unit

Table (2)

Note: Refer to Step 2 of part (a) for value and computation of single plant-wide overhead rate.

Compute direct labor cost per unit for each product.

Types of Products Estimated Direct Labor Rate × Number of DLH Per Unit of Each Product = Direct Labor Cost Per Unit
Pistons $20 per DLH × 0.20 DLH = $4.00 per unit
Valves $20 per DLH × 0.15 DLH = $3.00 per unit
Cams $20 per DLH × 0.32 DLH = $6.40 per unit

Table (3)

(c)

To determine

To draft: Budgeted gross profit report of OC Engines for the year ended December 31, 2016

(c)

Expert Solution
Check Mark

Explanation of Solution

Prepare a budgeted gross profit report of OC Engines, by product line, for the year ended December 31, 2016.

OC Engines
Budgeted Gross Profit Report
December 31, 2016
  Pistons Valves Cams
Revenues $360,000 $288,000 $84,000
Direct materials cost 180,000 115,200 34,800
Direct labor cost 28,800 86,400 7,680
Factory overhead 43,200 129,600 11,520
Total product costs 252,000 331,200 54,000
Gross profit $108,000 $(43,200) $30,000
Gross profit as a percent of sales 30.0% (15.0)% 35.7%

Table (4)

Working Notes:

Compute sales revenues for each product.

Types of Products Number of Budgeted Units × Price Per Unit = Sales Revenue
Pistons 7,200 units × $50 = $360,000
Valves 28,800 units × 10 = 288,000
Cams 1,200 units × 70 = 84,000

Table (5)

Compute direct material cost for each product.

Types of Products Number of Budgeted Units × Direct Material Cost Per Unit = Direct Material Cost
Pistons 7,200 units × $25 = $180,000
Valves 28,800 units × 4 = 115,200
Cams 1,200 units × 29 = 34,800

Table (6)

Compute direct labor cost for each product.

Types of Products Number of Budgeted Units × Direct Labor Cost Per Unit = Direct Labor Cost
Pistons 7,200 units × $4.00 = $28,800
Valves 28,800 units × 3.00 = 86,400
Cams 1,200 units × 6.40 = 7,680

Table (7)

Compute total factory overhead allocated for each product.

Types of Products Number of Budgeted Units × Factory Overhead Per Unit = Total Factory Overhead
Pistons 7,200 units × $6.00 per unit = $43,200
Valves 28,800 units × 4.50 per unit = 129,600
Cams 1,200 units × 9.60 per unit = 11,520

Table (8)

Note: Refer to Table (2) for value and computation of factory overhead per unit.

Compute gross profit as a percent of sales for each product.

Types of Products Gross Profit ÷ Sales Revenues × 100 = Gross Profit Percentage
Pistons $108,000 ÷ $360,000 × 100 = 30.0%
Valves (43,200) ÷ 288,000 × 100 = (15.0)%
Cams 30,000 ÷ 84,000 × 100 = 35.7%

Table (9)

Note: Refer to Table (5) for value and computation of sales revenues.

(d)

To determine

To discuss: The inferences from the gross profit report.

(d)

Expert Solution
Check Mark

Explanation of Solution

Of the three products, pistons are highly profitable, and cams are profitable as well. But valves are at loss. The sales price per unit should either be increased, or the cost price should be cut down to increase the profitability of valves.

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Chapter 26 Solutions

Financial & Managerial Accounting

Ch. 26 - Single plantwide factory overhead rate The total...Ch. 26 - Single plantwide factory overhead rate The total...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity based costing: factory overhead costs The...Ch. 26 - Activity-based costing: factory overhead costs The...Ch. 26 - Activity-based costing: selling and administrative...Ch. 26 - Activity-based costing: selling and administrative...Ch. 26 - Activity-based costing for a service business...Ch. 26 - Activity-based costing for a service business...Ch. 26 - Single plantwide factory overhead rate Nixon...Ch. 26 - Single plantwide factory overhead rate Matts Music...Ch. 26 - Single plantwide factory overhead rate Sally...Ch. 26 - Prob. 26.4EXCh. 26 - Multiple production department factory overhead...Ch. 26 - Single plantwide and multiple production...Ch. 26 - Single plantwide and multiple production...Ch. 26 - Identifying activity bases in an activity-based...Ch. 26 - Product costs using activity rates Nozama.com Inc....Ch. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Activity cost pools, activity rates, and product...Ch. 26 - Activity-based costing and product cost distortion...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based costing and product cost distortion...Ch. 26 - Single plantwide rate and activity-based costing...Ch. 26 - Evaluating selling and administrative cost...Ch. 26 - Prob. 26.18EXCh. 26 - Prob. 26.19EXCh. 26 - Activity-based costing for a service company...Ch. 26 - Activity-based costing for a service company...Ch. 26 - Single plantwide factory overhead rate Orange...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based and department rate product costing...Ch. 26 - Prob. 26.4APRCh. 26 - Prob. 26.5APRCh. 26 - Product costing and decision analysis for a...Ch. 26 - Single plantwide factory overhead rate Spoiled Cow...Ch. 26 - Multiple production department factory overhead...Ch. 26 - Activity-based department rate product costing and...Ch. 26 - Activity-based product costing Sweet Sugar Company...Ch. 26 - Allocating selling and administrative expenses...Ch. 26 - Product costing and decision analysis for a...Ch. 26 - Prob. 26.1CPCh. 26 - Prob. 26.2CPCh. 26 - Activity-based costing for a service company Wells...Ch. 26 - Using a product profitability report to guide...Ch. 26 - Prob. 26.5CPCh. 26 - Prob. 26.6CP
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