Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 2.B, Problem 1E
EXERCISE 2B-1 Overhead Rate Based on Capacity LO2-6
Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty7 woods. The company uses a
The results of a recent month’s operations appear below:
Required:
- Prepare an income statement following the example in Exhibit 2B-1 that records the cost of unused capacity on the income statement as a period expense.
- Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?
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Ch 26 pro 2
Single Plantwide Factory Overhead Rate
Krispy Treats Snack Food Company manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period:
Factory depreciation
$21,191
Indirect labor
52,518
Factory electricity
5,989
Indirect materials
12,438
Selling expenses
29,484
Administrative expenses
16,584
Total costs
$138,204
Factory overhead is allocated to the three products on the basis of processing hours. The products had the following production budget and processing hours per case:
Budgeted Volume(Cases)
Processing HoursPer Case
Tortilla chips
7,200
0.12
Potato chips
6,900
0.10
Pretzels
3,600
0.15
Total
17,700
If required, round all per-case answers to the nearest cent.
a. Determine the single plantwide factory overhead rate.$ per…
Question 2
Two products, A and B, are made using similar equipment and methods. The data for last period are:Product A Product BUnits produced 6 000 8 000Labour hours per unit 1 2Machine hours per unit 4 2Set-ups in period 15 45Orders handled in the period 12 60Overheads for Period $Relating to production set-up 179 000Relating to order handling 30 000Relating to machine activity 55 000 264 000
A. Calculate the overheads to be absorbed per unit of each product, based on:i. absorption costing using labour hour absorption rate.
ii. an ABC approach using suitable cost drivers.
B. Give TWO (2) advantages and TWO (2) disadvantages of the ABC System.
Y2
Part 1
Clean−It−Up, Inc., is a manufacturer of vacuums and uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of budgeted machine-hours. In
2020, budgeted fixed manufacturing overhead cost was$18,000,000. Budgeted variable manufacturing overhead was $8 per machine-hour. The denominator level was 1,000,000 machine-hours.
Chapter 2 Solutions
Managerial Accounting
Ch. 2.A - EXERCISE 2A-1 Activity-Based Absorption Costing...Ch. 2.A - EXERCISE 2A-2 Activity-Based Absorption Costing as...Ch. 2.A - EXERCISE 2A-3 Activity-Based Absorption Costing as...Ch. 2.A - PROBLEM 2A-4 Activity-Based Absorption Costing as...Ch. 2.A - Prob. 5PCh. 2.A -
CASE 2A-6 Activity-Based Absorption Costing and...Ch. 2.B - EXERCISE 2B-1 Overhead Rate Based on Capacity...Ch. 2.B - EXERCISE 2B-2 Overhead Rates and Capacity Issues...Ch. 2.B - Prob. 3PCh. 2.B - Prob. 4C
Ch. 2 - Prob. 1QCh. 2 - What is absorption costing?Ch. 2 - What is normal costing?Ch. 2 - How is the unit product cost of a job calculated?
Ch. 2 - Explain the four-step process used to compute a...Ch. 2 - What is the purpose of the job cost sheet in a...Ch. 2 - Explain why some production costs must be assigned...Ch. 2 - Why do companies use predetermined overhead rates...Ch. 2 - What factors should be considered in selecting an...Ch. 2 - If a company fully allocates all of its overhead...Ch. 2 - Would you expect the amount of applied overhead...Ch. 2 - Prob. 12QCh. 2 - What is a plantwide overhead rate? Whyare multiple...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 3AECh. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 1F15Ch. 2 - Prob. 2F15Ch. 2 - Prob. 3F15Ch. 2 - Prob. 4F15Ch. 2 - Prob. 5F15Ch. 2 - Prob. 6F15Ch. 2 - Prob. 7F15Ch. 2 - Prob. 8F15Ch. 2 - Prob. 9F15Ch. 2 - Prob. 10F15Ch. 2 - Prob. 11F15Ch. 2 - Sweeten Company had no jobs in progress at the...Ch. 2 - Prob. 13F15Ch. 2 - Prob. 14F15Ch. 2 - Prob. 15F15Ch. 2 - EXERCISE 2-1 Compute a Predetermined Overhead Rate...Ch. 2 - Prob. 2ECh. 2 - EXERCISE 2–3 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 24 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 2-5 Computing Total Job Costs and Unit...Ch. 2 - Prob. 6ECh. 2 - EXERCISE 2-7 Job-Order Costing; Working Backwards...Ch. 2 - EXERCISE 2-8 Applying Overhead Cost; Computing...Ch. 2 - EXERCISE 2–9 Job-Order Costing and Decision Making...Ch. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - Prob. 12ECh. 2 - EXERCISE 2—13 Departmental Predetermined Overhead...Ch. 2 - EXERCISE 214 Job-Orders Costing for a Service...Ch. 2 - Prob. 15ECh. 2 - PROBLEM 2—16 Plantwide Predetermined Overhead...Ch. 2 - PROBLEM 217 Plantwide and Departmental...Ch. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Prob. 20PCh. 2 - PROBLEM 2-21 Plant wide Versus Multiple...Ch. 2 - CASE 2-22 Plantwide versus Departmental Overhead...
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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?arrow_forwardFactory 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?arrow_forwardProblem 3-12 (Static) Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3-4] Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined overhead rate was based on a cost formula that estimates $900,000 of total manufacturing overhead for an estimated activity level of 75,000 machine-hours. During the year, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year: Machine-hours 60,000 Manufacturing overhead cost $ 850,000 Inventories at year-end: Raw materials $ 30,000 Work in process (includes overhead applied of $36,000) $ 100,000 Finished goods (includes overhead applied of $180,000) $ 500,000 Cost of goods…arrow_forward
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