PracticeChapter04

PracticeChapter04 - CHAPTER 4 43 1. $2,800,000/250,000 =...

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CHAPTER 4 4–3 1. $2,800,000/250,000 = $11.20 per machine hour 2. $2,856,000 Applied overhead ($11.20 × 255,000) 2,820,000 Actual overhead $ 36,000 Overapplied overhead 4–3 Concluded 3. Overhead Control. .......................... 36,000 Cost of Goods Sold. ................. 36,000 4. Work-in-Process Inventory $ 192,000 (19.2%: $192,000/$1,000,000) Finished Goods Inventory 208,000 (20.8%: $208,000/$1,000,000) Cost of Goods Sold 600,000 (60.0%: $600,000/$1,000,000) $ 1,000,000 Overhead Control. .......................... 36,000 Work-in-Process Inventory. ..... 6,912 (19.2% × $36,000) Finished Goods Inventory. ...... 7,488 (20.8% × $36,000) Cost of Goods Sold. ................. 21,600 (60.0% × $36,000) 4–5 1. Yes. Direct materials and direct labor are directly traceable to each product; their cost assignment should be accurate. 2. Note: Overhead rate = $60,000/$48,000 = $1.25 per direct labor dollar (or 125% of direct labor dollars) Standard: (1.25 × $12,000)/3,000 = $5.00 per purse Handcrafted: (1.25 × $36,000)/3,000 = $15.00 per purse More machine and setup costs are assigned to the handcrafted purses than the standard purses. This is clearly a distortion since the automated produc-
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tion of standard purses uses the setup and machine resources much more than handcrafted purses. 3. Setup rate = $18,000/600 hours = $30 per setup hour Machine rate = $42,000/20,000 = $2.10 per machine hour Standard Handcrafted Setup rate: $30 × 400. ......................... $12,000 $30 × 200. ......................... $ 6,000 Machine rate: $2.10 × 18,000. ................ 37,800 $2.10 × 2,000. .................. 4,200 Total . ................................... $49,800 $10,200 Units . ................................... ÷ 3,000 ÷ 3,000 Unit overhead cost. ........ $ 16.60 $ 3.40 Setup hours were chosen because the time per setup differs significantly between standard and handcrafted purses. Transaction drivers measure the number of times an activity is performed, while duration drivers measure the time required. Duration drivers typically provide greater accuracy whenever the time required per transaction is not the same for all products. This cost assignment appears more reasonable, given the relative demands each product places on setup and machine resources. Direct labor dollars fail to capture the relative consumption of resources by the two products. Once a firm moves to a multiproduct setting, using only one activity driver to assign costs will likely produce product cost distortions. Products tend to make dif- ferent demands on overhead activities, and this should be reflected in over- head cost assignments. Usually, this means the use of both unit and nonunit activity drivers. 4–6
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This note was uploaded on 05/08/2011 for the course ACTG 2P21 taught by Professor Scarborough during the Winter '10 term at Brock University.

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PracticeChapter04 - CHAPTER 4 43 1. $2,800,000/250,000 =...

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