1. Peter Takesha, the manager of testing services at a medicaldiagnostics firm, purchased a new lab testing machine last year for$30,000. This year a new machine, which is faster and more reliablethan Peterâs current model, is on the market. In deciding whetherto purchase the new machine, should Peter consider how much he paidfor the old machine? Should he consider the value of the oldmachine in the used equipment market?
2. Parrish Plumbing provides plumbing services to residentialcustomers from Monday through Friday. Ken Parrish, the owner,believes that it is important for his employees to have Saturdayand Sunday off to spend with their families. However, he alsorecognizes that this policy has implications for profitability, andhe is considering staying open on Saturday.
Ken estimates that if his company stays open on Saturday, it cangenerate $2,500 of daily revenue each day for 52 days per year. Theincremental daily costs will be $700 for labor, $500 for parts,$100 for transportation, and $200 for office staff. These costs donot include a share of monthly rent or a share of depreciationrelated to office equipment.
Ken is determined not to have employees work on Sunday, but hewould like to know the opportunity cost of not working on Saturday.Provide Ken with an estimate of the opportunity cost, and explainwhy you do not have to consider rent or depreciation of officeequipment in your estimate.
3. During the month of August, Star Plastics had $70,000 oflabor costs that were traced to specific jobs. The company also had$50,000 of indirect labor related to supervisory pay. (Hint: Thereshould be separate journal entries for direct and indirectlabor.)
Required: Prepare journal entries to record labor cost duringAugust.
4. During the month of August, Star Plastics applied overhead tojobs using an overhead rate of $3 per dollar of direct labor.Direct labor in August was $100,000. Actual overhead in August was$260,000. Assume that actual overhead was composed of the followingitems.
Indirect materials
$40,000
Indirect Labor
$80,000
Utilities
$25,000
Depreciation
$60,000
Repair
$55,000
Total
$260,000
Required:
a. Prepare ajournal entry to record overhead applied to jobs.
b. Prepare ajournal entry to record actual overhead.
1. Peter Takesha, the manager of testing services at a medicaldiagnostics firm, purchased a new lab testing machine last year for$30,000. This year a new machine, which is faster and more reliablethan Peterâs current model, is on the market. In deciding whetherto purchase the new machine, should Peter consider how much he paidfor the old machine? Should he consider the value of the oldmachine in the used equipment market?
2. Parrish Plumbing provides plumbing services to residentialcustomers from Monday through Friday. Ken Parrish, the owner,believes that it is important for his employees to have Saturdayand Sunday off to spend with their families. However, he alsorecognizes that this policy has implications for profitability, andhe is considering staying open on Saturday.
Ken estimates that if his company stays open on Saturday, it cangenerate $2,500 of daily revenue each day for 52 days per year. Theincremental daily costs will be $700 for labor, $500 for parts,$100 for transportation, and $200 for office staff. These costs donot include a share of monthly rent or a share of depreciationrelated to office equipment.
Ken is determined not to have employees work on Sunday, but hewould like to know the opportunity cost of not working on Saturday.Provide Ken with an estimate of the opportunity cost, and explainwhy you do not have to consider rent or depreciation of officeequipment in your estimate.
3. During the month of August, Star Plastics had $70,000 oflabor costs that were traced to specific jobs. The company also had$50,000 of indirect labor related to supervisory pay. (Hint: Thereshould be separate journal entries for direct and indirectlabor.)
Required: Prepare journal entries to record labor cost duringAugust.
4. During the month of August, Star Plastics applied overhead tojobs using an overhead rate of $3 per dollar of direct labor.Direct labor in August was $100,000. Actual overhead in August was$260,000. Assume that actual overhead was composed of the followingitems.
Indirect materials | $40,000 |
Indirect Labor | $80,000 |
Utilities | $25,000 |
Depreciation | $60,000 |
Repair | $55,000 |
Total | $260,000 |
Required:
a. Prepare ajournal entry to record overhead applied to jobs.
b. Prepare ajournal entry to record actual overhead.
