1. Compute the manufacturing overhead rate and under- or over applied overhead.
A-1 Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $325,000 for the year, and machine usage is estimated at 125,000 hours.
For the year, $342,000 of overhead costs are incurred and 130,000 hours are used.
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of under or over-applied overhead at December 31?
(c) Prepare the adjusting entry to assign the under or over-applied overhead for the year to cost of goods sold.
2. Answer questions on costs and production.
The ledger of B-2 Company has the following work in process account.
Work in Process—Painting
5/1 Balance 3,590
5/31 Materials 5,160
5/31 Labor 2,740
5/31 Overhead 1,380
5/31 Transferred out ?
5/31 Balance ?
Production records show that there were 400 units in the beginning inventory, 30% complete, 1,400 units started, and 1,500 units transferred out. The beginning work in process had materials cost of $2,040 and conversion costs of $1,550. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.
(a) How many units are in process at May 31?
(b) What is the unit materials cost for May?
(c) What is the unit conversion cost for May?
(d) What is the total cost of units transferred out in May?
(e) What is the cost of the May 31 inventory?
3. Assign overhead using traditional costing and activity based costing (ABC).
C-3 Company has two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations.
Direct labor costs $50,000 $100,000
Machine hours 1,000 1,000
Setup hours 100 400
Total estimated overhead costs are $270,000. Overhead cost allocated to the machining activity cost pool is $170,000, and $100,000 is allocated to the machine setup activity cost pool.
(a) Compute the overhead rate using the traditional (plant-wide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.
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