Labor related @ $8/DLH 8,000 $ 64,000 2,000 $ 16,000 Machine setups @ $300/setup 500 150,000 900 270,000 Product testing @ $75/test 6,400 480,000 1,600 120,000 General factory @ $20/MH 30,000 600,000 15,000 300,000 Total OH cost Assigned (a) 1,294,000 706,000 No. of units Produced (b) ÷ 20,000 ÷ 5,000 Overhead cost per unit (a)/(b) $ 64.70 $ 141.20 Problem 4
Wong Company uses activity based costing to compute product costs for external reports. The company has three activity centers and applies overhead using the activity rates for the various activity cost pools. Data for the current year are presented below for the three activity cost pools: Activity Cost Pool Estimated OH Cost Expected Activity Actual Activity Batch setups (setups) $ 52,900 2,300 setups 2,260 setups Material handling (loads) $ 100,800 2,800 loads 2,770 loads General factory (DLHs) $ 65,000 2,500 DLHs 2,440 DLHs a. Determine how much total overhead was applied to products during the year. b. Actual manufacturing overhead costs for the year were $216,860. Determine the overapplied or underapplied overhead.
Solution - Part a Step one – compute predetermined overhead rate for each activity center: Activity Cost Pool Estimated OH Cost (a) Expected Activity (b) Activity Rate (a)/(b) Batch setups $ 52,900 2,300 Setups $ 23.00/Setup Material handling 100,800 2,800 Loads 36.00/Load General factory 65,000 2,500 DLHs 26.00/DLH Step two - compute the amount of overhead applied to production: Activity Cost Pool Activity Rate Actual Activity Overhead Applied Batch setups $ 23.00/Setup 2,260 setups $ 51,980 Material handling 36.00/Load 2,770 loads 99,720 General factory 26.00/DLH 2,440 DLHs 63,440 Total OH applied $ 215,140 Part b Actual manufacturing OH costs incurred $ 216,860 Manufacturing OH costs applied 215,140 Manufacturing OH is underapplied $ 1,720 Manufacturing Overhead Actual Applied Given $ 216,860 Computed Above $ 215,140 Underapplied $ 1,720 Closing Entry – Cost of Goods Sold 1,720 Manufacturing Overhead 1,720 To close out ending balance in Manufacturing Overhead.
Problem 4 ABC vs. Predetermined OH Rate Several years after reengineering its production process, Enke, Corp. hired a new controller, Natalie Babin, She developed an ABC system similar to the one used by Enke’s chief rival, Northstar. Part of the reason Barbin developed the ABC system was because Enke’s profits had been declining even though the company had shifted its product mix toward the product that appeared most profitable under the old system. Before adopting the new ABC system, Enke had used a plantwide overhead rate based upon direct labor hours that was developed years ago. For the upcoming year, Enke’s budgeted ABC manufacturing overhead allocation rates are as follows: Activity Allocation Base Activity Cost Allocation Rate Materials handling Number of parts $ 3.75 per part Machine setup Number of setups 300.00 per setup Insertion of parts Number of parts 24.00 per part Finishing Finishing direct labor hours 50.00 per hour The number of parts is now a feasible allocation base because Enke recently purchased bar- coding technology. Enke produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows: Standard Deluxe Parts per wheel 4.0 6.0 Setups per 1,000 wheels 15.0 15.0 Finishing direct labor hours 1.0 2.5 Total direct labor hours per wheel 2.0 3.0 The company’s managers expect to produce 1,000 units of each model during the year.
- Fall '07
- Managerial Accounting, ........., Cost driver