The management of Buelow Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. Estimated activity for the upcoming year 76,000machine-hoursCapacity 94,000machine-hoursActual activity for the year 82,800machine-hoursManufacturing overhead (all fixed)$5,572,320per year Job Q58A, which required 130 machine-hours, is one of the jobs worked on during the year. Required:a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated activity for the upcoming year.b. Determine how much overhead would be applied to Job
Q58A if the predetermined overhead rate is based on estimated activity for the upcoming year.c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the activity at capacity.d. Determine how much overhead would be applied to Job Q58A if the predetermined overhead rate is based on activity at capacity.e. Determine the cost of unused capacity for the yearif the predetermined overhead rate is based on activity at capacity.
What will be an ideal response?
a.
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $5,572,320 ÷ 76,000 MHs = $73.32 per MH
b.
| Manufacturing overhead applied to Job Q58A | |||
| Number of hours for the job | 120 | MHs | |
| Predetermined overhead rate | $ | 73.32 | per MH |
| Manufacturing overhead applied to the job | $ | 9,531.60 |
c.
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $5,572,320 ÷ 94,000 MHs = $59.28 per MH
d.
| Manufacturing overhead applied to Job Q58A | |||
| Number of hours for the job | 130 | MHs | |
| Predetermined overhead rate | $ | 59.28 | per MH |
| Manufacturing overhead applied to the job | $ | 7,706.40 |
e.
| Actual manufacturing overhead cost incurred | $ | 5,572,320 | |
| Manufacturing overhead applied to jobs: | |||
| Predetermined overhead rate | $ | 59.28 | per MH |
| Actual hours | 82,800 | MHs | |
| Manufacturing overhead applied to jobs | $ | 4,908,384 | |
| Cost of unused capacity | $ | 663,936 |
You might also like to view...
Which of the following provides an explanation of why the variable overhead rate is separated from the fixed overhead rate in standard costing?
A) There is no justifiable reason; their separation is merely to simplify entries. B) Both calculations divide by the same direct labor hours, but the numerator is different for each calculation. C) The variable overhead rate is calculated using actual direct labor hours, whereas the fixed overhead rate is calculated using normal capacity direct labor hours. D) The behavior of costs, used for computing variable overhead rate and fixed overhead rate, differs.
The ________ strategy results in a peak during the discount week, often followed by a steep drop in demand during the following weeks
A) Everyday low pricing B) High-low pricing C) Fixed price D) Menu pricing
A computer-based system that allows a police officer to consider a variety of alternatives for allocating police officers to different neighborhoods is an example of a:
A) group support system. B) transaction processing information system. C) vertically integrated information system. D) decision support system (DSS).
One of the drivers of the direct-to-store (direct distribution) approach is the upstream migration of value-added logistics services.
Answer the following statement true (T) or false (F)