Concept explainers
Proration of
Manufacturing overhead rate (fabrication department) | $12 per machine-hour |
Manufacturing overhead rate (finishing department) | $20 per direct manuf. labor-hour |
Machine-hours (fabrication department) for May | 3,200 machine-hours |
Direct manuf. labor-hours (finishing department) for May | 1,800 labor-hours |
Work-in-process inventory, May 31 | $60,000 |
Finished-goods inventory, May 31 | $180,000 |
Cost of goods sold, May | $360,000 |
Adventure Designs prorates under- and overallocated overhead monthly to work in process, finished goods, and cost of goods sold based on the ending balance in each account.
- 1. Calculate the amount of overhead allocated in the fabrication department and the finishing department in May.
Required
- 2. Calculate the amount of under- or overallocated overhead in each department and in total.
- 3. How much of the under- or overallocated overhead will be prorated to (a) work-in-process inventory (b) finished-goods inventory and (c) cost of goods sold based on the ending balance (before proration) in each of the three accounts? What will be the balance in work-in-process, finished-goods, and cost of goods sold after proration?
- 4. What would be the effect of writing off under- and overallocated overhead to cost of goods sold? Would it be reasonable for Adventure Designs to change to this simpler method?
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EBK HORNGREN'S COST ACCOUNTING
- Nichols Inc. manufactures remote controls. Currently the company uses a plant – wide rate for allocating manufacturing overhead. The plant manager is considering switching - over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Cost driver Allocation Rate Material handling Number of parts $4 per part Assembly Labor hours $20 per hour Inspection Time at inspection station $10 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $600 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity – based - costing method is used and a batch of 100 remote controls are produced? The batch requires 420 parts, 9 direct manufacturing labor hours, and 13 minutes of inspection time. ..... O A. $6.00 per remote control B. $34.00 per remote control OC. $1,990.00 per remote control…arrow_forwardFranklin Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow: Cost Cost driver Req A and B Unit Level $ 62,400 2,400 labor hours Req C Allocated overhead Direct cost Total cost per unit Desired profit Sales price Production of 710 sets of cutting shears, one of the company's 20 products, took 170 labor hours and 6 setups and consumed 15 percent of the product-sustaining activities. Complete this question by entering your answers in the tabs below. Required a. Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears? b. How much overhead is allocated to the cutting shears using activity-based costing? c. Compute the overhead cost per unit for cutting shears first using activity-based costing and then using…arrow_forwardActivity-Based Costing CardioTrainer Equipment Company manufactures stationary bicycles and treadmills. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows: Activity Activity Rate Fabrication $22 per machine hour (mh) Assembly $12 per direct labor hour (dlh) Setup $40 per setup Inspecting $18 per inspection Production scheduling $8 per production order Purchasing $5 per purchase order The activity-base usage quantities and units produced for each product were as follows: Stationary Bicycle Treadmill Machine hours 1,680 1,070 Direct labor hours 243 131 Setups 45 131 Inspections 158 94 Production orders 60 32 Purchase orders 240 98 Units produced 500 350 Use the activity rate and usage information to compute the total activity costs and the activity…arrow_forward
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