1 budgeted manufacturing overhead rate budgeted

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1. Budgeted manufacturing overhead rate = Budgeted manufacturing overhead Budgeted machine hours = $4,500,000 300,000 machine-hours = $15 per machine-hour 2. Manufacturing overhead allocated = Actual machine-hours × Budgeted manufacturing overhead rate = 310,000 × $15 = $4,650,000 3. Since manufacturing overhead allocated is greater than the actual manufacturing overhead costs, Cornex overallocated manufacturing overhead: Manufacturing overhead allocated $4,650,000 Actual manufacturing overhead costs 4,200,000 Overallocated manufacturing overhead $ 450,000
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4-7 4-20 (20-30 min.) Job costing, accounting for manufacturing overhead, budgeted rates. 1. An overview of the product costing system is COST OBJECT: PRODUCT COST ALLOCATION BASE DIRECT COST } } Machining Department Manufacturing Overhead Machine-Hours Direct Materials INDIRECT COST POOL } Direct Manufacturing Labor Indirect Costs Direct Costs } Assembly Department Manufacturing Overhead Direct Manuf. Labor Cost Budgeted manufacturing overhead divided by allocation base: Machining overhead 000 , 50 000 , 800 , 1 $ = $36 per machine-hour Assembly overhead: 000 , 000 , 2 $ 000 , 600 , 3 $ = 180% of direct manuf. labor costs 2. Machining department, 2,000 hours × $36 $72,000 Assembly department, 180% × $15,000 27,000 Total manufacturing overhead allocated to Job 494 $99,000 3. Machining Assembly Actual manufacturing overhead $2,100,000 $ 3,700,000 Manufacturing overhead allocated, 55,000 × $36 1,980,000 180% × $2,200,000 3,960,000 Underallocated (Overallocated) $ 120,000 $ (260,000 )
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4-8 4-21 (20 25 min.) Job costing, consulting firm. 1. Budgeted indirect-cost rate = $16,000,000 ÷ $8,000,000 = 200% of professional labor costs 2. At the budgeted revenues of $30,000,000, Wheeler’s operating income of $6,000,000 equals 20% of revenues. Markup rate = $30,000,000 ÷ $8,000,000 = 375% of direct professional labor costs COST ALLOCATION BASE } } } COST OBJECT: JOB FOR CONSULTING CLIENT DIRECT COSTS } Indirect Costs Direct Costs INDIRECT COST POOL Professional Labor Costs Professional Labor Costs Professional Labor Client Support
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4-9 3. Budgeted costs Direct costs: Director, $225 × 2 $ 450 Partner, $150 × 15 2,250 Associate, $60 × 25 1,500 Assistant, $40 × 120 4,800 $ 9,000 Indirect costs: Consulting support, 200% × $9,000 18,000 Total costs $27,000 As calculated in requirement 2, the bid price to earn a 20% income-to-revenue margin is 375% of direct professional costs. Therefore, Wheeler should bid 3.75 × $9,000 = $33,750 for the Chicken Delight job. Bid price to earn target operating income-to-revenue margin of 20% can also be calculated as follows: Let R = revenue to earn target income R – 0.20R = $27,000 0.80R = $27,000 R = $27,000 ÷ 0.80 = $33,750 or, Direct costs $ 9,000 Indirect costs 18,000 Operating income 6,750 Bid price $33,750
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4-10 4-22 (15–20 min.) Service industry, time period used to compute indirect cost rates. 1. Jan–March April–June July–Sept Oct–Dec Total Direct labor costs $400,000 $280,000 $250,000 $270,000 $1,200,000 Variable overhead costs as a percentage of direct labor costs 90 % 60 % 60 % 60 % Variable overhead costs (Percentage × direct labor costs) $360,000 $168,000 $150,000 $162,000 $ 840,000 Fixed overhead costs 300,000 300,000 300,000 300,000 1,200,000 Total overhead costs $660,000 $468,000 $450,000 $462,000 $2,040,000 Total overhead costs as a percentage of direct labor costs 165% 167% 180% 171% 170% Budgeted Overhead Rate Used Job 332 Jan–March Rate July–Sept Rate Average Yearly Rate Direct materials $10,000 $10,000 $10,000 Direct labor costs 6,000 6,000 6,000 Overhead allocated (variable + fixed) (165%; 180%; 170% of $6,000) 9,900 10,800 10,200 Full cost of Job 332 $25,900 $26,800
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