HI LOW CH 2 EXR 13 SPICELAND - Exercise 2-13(30 minutes...

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Exercise 2-13 (30 minutes) Note to the instructor: This exercise is a good vehicle for introducing the concept of predetermined overhead rates. This exercise can also be used as a launching pad for a discussion of Appendix 3B. 1. Units Produced Manufacturi ng Overhead High activity level (First quarter) .................................. 80,000 $300,000 Low activity level (Third quarter) .................................. 20,000 180,000 Change ..................................... 60,000 $120,000 Variable cost = Change in cost ÷ Change in activity = $120,000 ÷ 60,000 units = $2.00 per unit produced Total overhead cost (First quarter) ....................... $300,00 0 Variable cost element ($2.00 per unit × 80,000 units) ................................................................. 160,00 0 Fixed cost element ............................................... $140,00 0 These fixed and variable cost estimates can be used to estimate the total manufacturing overhead cost for the fourth quarter as follows: Y = $140,000 + ($2.00 per unit)(60,000 units) Estimated fixed manufacturing overhead .......... $140,000 Estimated variable manufacturing overhead $2.00 per unit × 60,000 units ......................... 120,00 0 Estimated total manufacturing overhead cost... $260,000 Total manufacturing cost and unit product cost: Direct materials ............................................... $180,000 Direct labor ...................................................... 96,000 Manufacturing overhead .................................. 260,000

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