CH 2 Concept Overviews, Exercises and Problems

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.

total fixed manufacturing overhead cost

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

$4,000 Explanation: Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000

What is (are) used in activity-based absorption costing to assign overhead costs to products?

Multiple activity rates

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates

Design and engineering changes are examples of ________.

product-level activities

When all of a company's job cost sheets are viewed collectively they form what is known as a ________.

subsidiary ledger

Grey Corporation is a manufacturer of custom photo books. The company uses machine printing time as the allocation base for applying manufacturing overhead to its products. Summary data about the company's operations is as follows: Total manufacturing cost: $120,000 per year Allocation base: machine time per custom photo book: 15 seconds per customer photo book Capacity: 800,000 custom photo books per year Budgeted output for next year: 500,000 custom photo books per year Based on the data provided in the table, what is the predetermined overhead rate based on capacity?

$0.01 per second Explanation: Estimated total amount of the allocation base = Machine time per custom photo book × Capacity Estimated total amount of the allocation base = 15 seconds × 800,000 custom photo book's per year = 1,200,000 seconds Predetermined overhead rate based on capacity = Estimated total manufacturing overhead cost at capacity ÷ Estimated total amount of the allocation base at capacity Predetermined overhead rate based on capacity = $120,000 ÷ 1,200,000 seconds = $0.01 per second

The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?

$10.00 per machine hour Explanation: Estimated total overhead cost = $300,000 + ($4 per MH × 50,000 MHs) = $500,000 Predetermined overhead rate = Estimated total overhead cost of $500,000 ÷ 50,000 MHs = $10 per MH

An activity measure is a(n) ________.

allocation base

Mansfield, Incorporated, has two production departments, Assembly and Packaging. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The predetermined overhead rate in the Assembly Department is based on machine hours (MHs) and it is based on direct labor-hours (DLHs) in the Packaging Department. At the beginning of the year, the company made the following estimates: Direct labor: 5,200 Assembly; 62,000 Packaging Machine-Hours: 68,400 Assemble; 11,900 Packaging Total fixed manufacturing overhead cost: $390,000 Assembly; $419,000 Packaging Variable manufacturing overhead per DLH: $3.75 Packaging Variable manufacturing overhead per MH: $ 3.00 Assembly What is the predetermined overhead rate for the Packaging Department?

$10.51 per DLH Explanation: Estimated total manufacturing overhead = $419,000 + ($3.75 per DLH × 62,000 DLHs) = $651,500 Predetermined overhead rate = $651,500 ÷ 62,000 DLHs = $10.51 per DLH

Mansfield, Incorporated, has two production departments, Assembly and Packaging. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The predetermined overhead rate in the Assembly Department is based on machine hours (MHs) and it is based on direct labor-hours (DLHs) in the Packaging Department. At the beginning of the year, the company made the following estimates: Direct labor: 5,200 Assembly; 62,000 Packaging Machine-Hours: 68,400 Assemble; 11,900 Packaging Total fixed manufacturing overhead cost: $390,000 Assembly; $419,000 Packaging Variable manufacturing overhead per DLH: $3.75 Packaging Variable manufacturing overhead per MH: $ 3.00 Assembly What is the estimated total manufacturing overhead in the Assembly Department?

$595,200 Explanation: Estimated total manufacturing overhead = $390,000 + ($3.00 per MH × 68,400 MHs) = $595,200

What is the term used when a company applies less overhead to production than it actually incurs?

Underapplied

The direct materials required to manufacture each unit of product are listed on a ________.

bill of materials

A normal cost system applies overhead to jobs ________.

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

The adjustment for overapplied overhead ________.

decreases cost of goods sold and increases net operating income

Simmons, Incorporated's traditional costing system uses a plantwide predetermined overhead rate based on direct labor-hours (DLHs). The company's estimated total manufacturing overhead is $1,632,986 and estimated total direct labor-hours for the year is 30,220. Data about its only two products, A and B, as well as data pertaining to its proposed activity-based absorption costing system appears below. Direct materials per unit: ($31.80 Product A; $63.30 Product B) Direct labor per unit: ($10.00 Product A; $27.00 Product B) Direct labor-hours per unit: (0.20 Product A; 1.00 Product B) Annual production (units): (45,600 Product A; 21,100 Product B) ACTIVITIES AND ACTIVITY MEASURES: Supporting direct labor (DLHs): $695,060 estimated overhead cost Setting up machines (setups): $551,702 estimated overhead cost Parts administration (part types): $386,224 estimated overhead cost Total: $1,632,986 EXPECTED ACTIVITY: DLHs: (9,120 Product A; 21,100 Product B; 30,220 Total) Setups: (1,450 Product A; 1,024 Product B; 2,474 Total) Part types: (677 Product A; 279 Product B; 956 Total) When manufacturing overhead is applied to each unit of product B, what is the activity rate that will be used for the setting up machines (setup) activity cost pool?

$223.00 Explanation: Activity rate for the setting up machines (setup) activity cost pool= $551,702 ÷ 2,474 setups = $223.00 per setup

Grey Corporation is a manufacturer of custom photo books. The company uses machine printing time as the allocation base for applying manufacturing overhead to its products. Summary data about the company's operations is as follows: Total manufacturing cost: $120,000 per year Allocation base: machine time per custom photo book: 15 seconds per customer photo book Capacity: 800,000 custom photo books per year Budgeted output for next year: 500,000 custom photo books per year Based on the data provided in the table, what is the predetermined overhead rate based on budgeted output?

$0.016 per second Explanation: Estimated total amount of the allocation base = Machine time per custom photo book × Budgeted output Estimated total amount of the allocation base = 15 seconds × 500,000 custom photo book's per year = 7,500,000 seconds Predetermined overhead rate based on budgeted output = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate based on budgeted output = $120,000 ÷ 7,500,000 seconds = $0.016 per second

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job's unit product cost (per audio controller)?

$124 Explanation: Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200 Unit product cost = Total cost associated with the job ÷ Number of units Unit product cost = $6,200 ÷ 50 Units = $124

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?

$6,200 Explanation: Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200