Acc349 Managerial Accounting: Week 2 Assignment (P2-4A, P3-3A, P4-1B, P4-3B)

Acc349 Managerial Accounting
Week 2 Assignment (P2-4A, P3-3A, P4-1B, P4-3B)

P2-4A Compute predetermined overhead rates, apply overhead, and calculate under- or overapplied overhead.
Acquatic Manufacturing uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A, direct labor hours in Department B, and machine hours in Department C. In establishing the predetermined overhead rates for 2005 the following estimates were made for the year.
Manufacturing overhead 930,000 800,000 750,000
Direct labor cost 600,000 100,000 600,000
Direct labor hours 50,000 40,000 40,000
Machine hours 100,000 120,000 150,000

During January, the job cost sheets showed the following costs and production data.
Direct materials used 92,000 86,000 64,000
Direct labor cost 48,000 35,000 50,400
Manufacturing overhead incurred 76,000 74,000 61,500
Direct labor hours 4,000 3,500 4,200
Machine hours 8,000 10,500 12,600

a. Compute the predetermined overhead rate for each department.
b. Compute the total manufacturing costs assigned to jobs in January in each department.
c. Compute the under- or overapplied overhead for each department at January 31.
Stein Corporation manufactures in separate processes refrigerators and freezers for homes. In each process, materials are entered at the beginning and conversion costs are incurred uniformly. Production and cost data for the first process in making two products in two different manufacturing plants are as follows.
Stamping Department
Plant A Plant B
R12 Refrigerators F24 Freezers
Production Data - June
Work in process units, June 1 - -
Units started into production 20,000 20,000
Work in process units, June 30 2,000 3,000
Work in process percent complete 70% 50%

Work in process, June 1 - -
Materials 840,000 700,000
Labor 200,800 236,000
Overhead 420,000 319,000
Total $1,460,800 $1,255,000

(a) For each plant:
(1) Compute the physical unit flow.
(2) Compute equivalent units of production for materials and for conversion costs.
(3) Determine the unit costs of production.
(4) Show the assignment of costs to units transferred out and in process.
(b) Prepare the production cost report for Plant A for June 2005.

Waves Galore, Inc. manufactures hair curlers and blow-dryers. The handheld hair curler is Waves Galore’s high volume product (80,000 units annually). It is a “large barrel,” 20-watt, triple-heat appliance designed to appeal to the teenage market segment with its glow-in-the-dark handle. The handheld blow-dryer is Waves Galore’s lower-volume product (40,000 units annually). It is a three-speed, 2,000 watt appliance with a “cool setting” and a removable filter. It also is designed for the teen market.
Both products require one hour of direct labor for completion. Therefore, total annual direct labor hours are 120,000, (80,000 + 40,000). Expected annual manufacturing overhead is $438,000. Thus, the predetermined overhead rate is $3.65 per direct labor hour. The direct materials cost per unit is $5.25 for the hair curler and $9.75 for the blow-dryer. The direct labor cost is $8.00 per unit for the hair curler and the blow-dryer.
Waves Galore purchases most of the parts from suppliers and assembles the finished product at its Fargo, North Dakota plant. It recently adopted activity-based costing, which after this year-end will totally replace its traditional direct labor-based cost accounting system. Waves Galore has identified the following six activity cost pools and related cost drivers and has assembled the following information.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Drivers by Product
Curlers Dryers
Purchasing Orders 57,500 500 170 330
Receiving Pounds 42,000 140,000 58,000 82,000
Assembling Parts 166,000 830,000 415,000 415,000
Testing Tests 52,000 130,000 82,000 48,000
Finishing Units 60,000 120,000 80,000 40,000
Packing and shipping Cartons 60,500 12,100 8,040 4,060

(a) Under traditional product costing, compute the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 4-4).
(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
(c) Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)
(d) Compute the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non-value-added activity.
(f) Comment on (1) the comparative overhead cost per unit for the two products under ABC, and (2) the comparative total costs per unit under traditional costing and ABC.

Kitchen Kabinets Company designs and builds upscale kitchen cabinets for luxury homes. Many of the kitchen cabinet and counter arrangements are custom made, but occasionally the company does mass production on order. Its budgeted manufacturing overhead costs for the year 2006 are as follows.
Overhead Cost Pools Amount
Purchasing 114,400.00
Handling materials 164,320.00
Production (cutting, milling, finishing) 500,000.00
Setting up machines 174,480.00
Inspecting 184,800.00
Inventory control (raw materials and
finished goods) 252,000.00
Utilities 360,000.00
Total budget overhead costs $1,750,000

For the last 3 years, Kitchen Kabinets Company has been charging overhead to products on the basis of machine hours. For the year 2006, 100,000 machine hours are budgeted. Ben Chen, the owner-manager, recently directed his accountant, John Kandy, to implement the activity-based costing system he has repeatedly proposed. At Ben’s request, John and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
Activity Cost Pools Activity Cost Drivers Expected Use of Cost Drivers
Purchasing Number of orders 650
Handling materials Numbers of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,200
Inspecting Number of inspections 6,000
Inventory control (raw materials and
finished goods) Number of components 36,000
Utilities Square feet occupied 90,000

Sara Sosa, sales manager, has received an order for 50 kitchen cabinet arrangements from Bitty Builders, a housing development contractor. At Sara’s request, John prepares cost estimates for producing components for 50 cabinet arrangements so Sara can submit a contract price per kitchen arrangement to Bitty Builders. He accumulates the following data for the production of 50 kitchen cabinet arrangements.
Direct materials 180,000
Direct labor 200,000
Machine hours 15,000
Direct labor hours 12,000
Number of purchase orders 50
Number of material moves 800
Number of machine setups 100
Number of inspections 450
Number of components (cabinets and accessories) 3,000
Number of square feet occupied 8,000

(a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round to the nearest cent.)
(b) What is the manufacturing cost per complete kitchen arrangement under traditional costing?
(c) What is the manufacturing cost per kitchen arrangement under the proposed activity-based costing? (Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions and why?
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