ACG-2071 Lecture Notes - Lecture 4: Variable Cost, Coq, Financial Statement

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29 Sep 2016

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Activity-based costing, lean operations, and the cost of quality. Recall from chapter 3, that we are fairly unsure about the true amount of moh that should be allocated to any job. We saw that the amount of moh assigned to jobs is heavily dependent upon the allocation base used. It would be nice if we could get a more accurate allocation of. Moh an amount that we feel we could really trust. This is what we will attempt to do in this chapter. One way to refine our costing system is to use departmental overhead rates rather than a single plantwide overhead rate (chapter 3). Bevil industries manufactures its product in two different departments: machining and. The machining department is heavily automated, using manufacturing equipment that require little human labor time. The assembly department, on the other hand, is very labor intensive, requiring much supervision and quality control. The company"s moh costs for the year are budgeted at ,000,000.

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âBlast it!â said David Wilson, president of Teledex Company.âWeâve just lost the bid on the Koopers job by $4,000. It seemsweâre either too high to get the job or too low to make any moneyon half the jobs we bid.â

Teledex Company manufactures products to customersâspecifications 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.)

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ACG-2071 Lecture Notes - Lecture 4: Variable Cost, Coq, Financial Statement

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