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AC 212 Study Guide - Quiz Guide: Direct Labor Cost, Contribution Margin, Operating Leverage

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School
Quinnipiac University
Department
Accounting
Course
AC 212
Professor
Katherine Simione

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Document Summary

Review for test # 2 chapters 4, 6-7. Separate manufacturing overhead rates for each department: indirect products costs, allocated, assigning, or charging. Total estimated departmental overhead cost pool / total estimated amount of the departmental allocation base. Calculating the total amount of manufacturing overhead to allocate to a particular job with departmental overhead rates: Multiply each departmental overhead rate (see above) by the actual amount of the departmental allocation based used by the job; and then add together the allocated amounts from each department. Hierarchy of costs (examples): unit-level, batch-level, product-level facility-level. Activity-based costing: what is it, compute the activity allocation rate, compute the allocated overhead, best cost drivers. How do they behave: variable costs (total and per unit, fixed costs (total and per unit, mixed costs, examples of each. Cost estimation: account analysis, scatter-graph, high low method, compute variable cost per unit, compute total fixed costs, create cost equation, regression analysis.

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Related Questions

Jordan Company currently is using a plant-wide factory overheadrate based on machine hours. The budgeted factory overhead costs is$405,000. Company has two departments, X and Y. Company isconsidering use of departmental overhead rates for the allocationof each departments’ overhead costs to jobs. Overhead would beapplied based on direct labor cost in Department X andmachine-hours in Department Y. The following additional informationis available:

BudgetedAmounts DepartmentX Department Y

Direct laborcost $180,000 $165,000

Factoryoverhead $225,000 $180,000

Machine-hours 51,000mh 40,000 mh

Actual data for Job#10 DepartmentX Department Y

Direct materialsrequisitioned $10,000 $16,000

Direct laborcost $11,000 $14,000

Machine-hours 5,000mh 3,000 mh

1. Compute total costof manufacturing Job 10 under current system (using plant-widerate).

2. Compute total costof manufacturing Job 10 using departmental overhead rates.

Connie Corporation manufactures two products (a and b). Totaloverhead costs of $840,000 has been divided into four cost poolsthat use the following activity drivers:

Product Machine hours # of setups # of orders # of shipments total
A 2,000 200 600 1,000
B 3,000 100 200 1,000
Cost per pool 120,000 240,000 320,000 160,000 840,000

a) compute teh allocation rates per each activity driver listedabove?

b) what is the total overhead costs assigned to products A and Bassuming that overhead costs are allocated using the activity-basedcosting method?

c) compute the plant-wide rate overhead rate based on machinehours

d) What is the total overhead costs assigned to products A and Bassuming that overhead costs are allocated using the plant-widerate calculated in part (c)

“Blast it!” said David Wilson, president of Teledex Company.“We’ve just lost the bid on the Koopers job by $4,000. It seemswe’re either too high to get the job or too low to make any moneyon half the jobs we bid.”

Teledex Company manufactures products to customers’specifications and operates a job order costing system.Manufacturing overhead cost is applied to jobs on the basis ofdirect labor cost. The following estimates were made at thebeginning of the year:

Department
Fabricating Machining Assembly Total Plant
Direct labor $ 210,000 $ 105,000 $ 315,000 $ 630,000
Manufacturingoverhead $ 367,500 $ 420,000 $ 94,500 $ 882,000

Jobs require varying amounts of work in the three departments.The Koopers job, for example,
would have required manufacturing costs in the three departments asfollows:

Department
Fabricating Machining Assembly Total Plant
Directmaterials $ 4,000 $ 300 $ 2,400 $ 6,700
Direct labor $ 4,800 $ 600 $ 7,200 $ 12,600
Manufacturingoverhead ? ? ? ?

The company uses a plantwideoverhead rate to apply manufacturing overhead cost to jobs.

Required:
1. Assuming use of a plantwideoverhead rate:
a.

Compute the rate for the current year.


b.

Determine the amount of manufacturing overhead cost that wouldhave been applied to
the Koopers job.


2.

Suppose that instead of using a plantwide overhead rate, thecompany had used a separate predetermined overhead rate in eachdepartment. Under these conditions:


a. Compute the rate for eachdepartment for the current year.


b.

Determine the amount of manufacturing overhead cost that wouldhave been applied to
the Koopers job.



4.

Assume that it is customary in the industry to bid jobs at 150%of total manufacturing cost (direct materials, direct labor, andapplied overhead).


a.

What was the company's bid price on the Koopers job if aplantwide overhead rate had been used to apply overhead cost?


b.

What would the bid price have been if departmental overheadrates had been used to apply overhead cost?

5.

At the end of the year, the company assembled the followingactual cost data relating to all jobs worked on during theyear.


Department
Fabricating Machining Assembly Total plant
Directmaterials $ 200,000 $ 17,000 $ 124,000 $ 341,000
Direct labor 220,000 118,000 272,000 610,000
Manufacturingoverhead $ 377,000 $ 440,000 $ 85,900 $ 902,900


a.

Compute the underapplied or overapplied overhead for the year,assuming that a plantwide overhead rate is used.


b.

Compute the underapplied or overapplied overhead for the year,assuming that departmental overhead rates are used. (Enteroverapplied overhead costs as negative amounts and underappliedoverhead costs as positive amounts.)