Model oo ri oi ro description oval otc round in sink

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Model OORIOIRODescriptionOval, OTCRound, In sinkOval,In sinkRound,OTCUnitsBeginning inven-tory1004004500Cost per unit (be-ginning value / number of units)$320.00$197.25$298N/ASold from begin-ning inventory1002004000Value of units sold$32,000$39,450$119,2000Added this period 7000500200Cost per unit (job cost / # of units)1$316.00$305.54$443.02Sold from current production 65000150Value of units sold$205,400$0Total Sales$237,400$39,450$119,200$66,452.251$316 = $221,200/700.e.Answer computed as a piece of the answer to part c.f.Answer computed as a piece of the answer to part d.g.The final item we need to compute is the amount of under- or overapplied overhead. We know:Under/overapplied overhead = applied overhead – actual overhead.Until September, we haveActual overhead = $1,569,450Applied overhead = $1,581,615$21/labor hour × 75,315 labor hoursOverapplied OH= $12,165Balakrishnan, Sivaramakrishnan, & Sprinkle – 2eFOR INSTRUCTOR USE ONLY14-35
That is, Divine begins September with a credit balance of $12,165 in the overhead controlaccount.Now, let us add the transactions for September in the overhead control account.14-36ItemAmountBeginning balance (September 1)(12,165)Supplies $22,000Indirect labor 32,000 Supervision 18,400Depreciation 32,650Utilities 8,900Factory rent 15,400Applied overhead (see WIP detail)(144,333)Ending balance ($27,148) That is, Divine would have overapplied overhead of $27,148as of September 30. An-other way of computing the same answer is to compute the under/over applied overhead for September.Actual overhead for September$129,350Applied overhead for September$144,333Overapplied overhead($14,983)Added to the overapplied balance at the start of September, the total overapplied over-head is $27,148 = $12,165 + $14,983.14.64a.a.Total overhead rate for year 1= 000,720000,544$= $0.756 per labor dollar(rounded).Total overhead rate for year 2= 000,810000,562$= $0.694 per labor dollar(rounded).Total overhead rate for year 3= 000,650000,530$= $0.815 per labor dollar(rounded).b.b.Applied overhead = Overhead rate × Actual labor cost.Overhead applied in year 1 = $0.756 × $725,000 = $548,100.Actual overhead in year 1 = $565,000.Balakrishnan, Sivaramakrishnan, & Sprinkle – 2eFOR INSTRUCTOR USE ONLY
Thus, overhead was underapplied in year 1 by $16,900.Overhead applied in year 2 = $0.694 × $900,000 = $624,600.Actual overhead in year 2 = $600,000.Thus, overhead was overapplied in year 2 by $24,600c.c.The total cost of Phoebe’s order in year 2 = $15,000 + $30,000 + ($30,000 × 0.694). = $65,820.The markup charged for each order is 50% of the total cost. Therefore:Price charged for year 2 order= $65,820 + ($65,820 × 0.50).= $98,730The total cost of Phoebe’s order in year 3 = $15,500 + $32,000 + ($32,000 × 0.815).= $73,580.Price quoted for year 3 order= $73,580 + ($73,580 × 0.50).= $110,370d.d.It is hard to disagree with Phoebe. From her point of view, both direct materials and di-rect labor costs have not gone up by much. However, the overhead allocation rate is muchhigher in year 3 than in year 2 (up from $0.694 to $0.815 per direct labor dollar). The rea-son is that in year 3, the company’s fixed costs are the same as in year 2, but Vanessa ex-pects lower demand during the year -- the budgeted direct labor cost is down from $810,000 in year 2 to $650,000 in year 3. One could argue that there is no reason why Phoebe, as a customer, should pay a higher price just because things don’t look good for Vanessa’s company.e.e.In suggesting any other method, there are at least two key issues to consider:Year 3 appears to be a “down” year for the company. In general, when demand conditions are not favorable, most firms offer price cuts and discounts to stimulatedemand. The cost-plus pricing scheme that Noel Draperies has in place results in a price increase, which is contrary to this common business intuition.It also does not seem intuitive that the costof what is essentially the same job ap-pears to be a function of outside demand conditions. 14-37...Balakrishnan, Sivaramakrishnan, & Sprinkle – 2eFOR INSTRUCTOR USE ONLY

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