chapter 2 interactive presentation

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 appliedTotal 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

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

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

bill of materials Explanation: The direct materials required to manufacture each unit of product are listed on a bill of materials. A materials requisition form identifies the materials drawn from the storeroom that must then be charged to each job. Each employee who works on the job uses a time ticket to record the time spent. A job cost sheet is used to keep track of the materials, labor, and manufacturing overhead costs charged to each job.

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 Explanation: Note that the amount of overhead applied to a particular job is not the actual amount of overhead caused by the job. Actual overhead costs are not assigned to jobs—if that could be done, the costs would be direct costs, not overhead. Instead, a normal cost system applies overhead costs to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs.

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

subsidiary ledger explanation: A job cost sheet accumulates the total direct materials, direct labor, and manufacturing overhead costs term-12assigned to a job. When all of a company's job cost sheets are viewed collectively they form what is known as a subsidiary ledger.

The adjustment for overapplied overhead ________.

decreases cost of goods sold and increases net operating income. Explanation: When a company applies more overhead to production than it actually incurs, it results in overapplied overhead. In other words, too much overhead has been applied to production. The adjustment for overapplied overhead decreases cost of goods sold (since it has too much overhead in it). A decrease to cost of goods sold increases net operating income.

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates Explanation: To improve job cost accuracy, the allocation base in the predetermined overhead rate should drive the overhead cost. A cost driver is a factor that causes overhead costs. If the base in the predetermined overhead rate does not "drive" overhead costs, it will not accurately measure the cost of overhead resources used by each job. Companies can improve job cost accuracy by identifying more than one cost driver and using multiple predetermined overhead rates.

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 Explanation: The cost formula used to estimate the total manufacturing overhead cost for a given period is: Y = a + bX where, Y = the estimated total manufacturing overhead cost, a = the estimated total fixed manufacturing cost, b = the estimated variable manufacturing overhead cost per unit of the allocation base, and X = the estimated total amount of the allocation base.

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

Mansfield, Inc., 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: Assembly Packaging Direct labor-hours 5,200 62,000 Machine-hours 68,400 11,900 Total fixed manufacturing overhead cost $ 390,000 $ 419,000 Variable manufacturing overhead per DLH $ 3.75 Variable manufacturing overhead per MH $ 3.00 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, Inc., 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: Assembly Packaging Direct labor-hours 5,200 62,000 Machine-hours 68,400 11,900 Total fixed manufacturing overhead cost $ 390,000 $ 419,000 Variable manufacturing overhead per DLH $ 3.75 Variable manufacturing overhead per MH $ 3.00 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

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

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

underapplied Explanation: When a company applies less overhead to production than it actually incurs, it creates what is known as underapplied overhead. When it applies more overhead to production than it actually incurs, it results in overapplied overhead.