Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base

Transcription

1 Exercise 3-6 (30 minutes) 1. Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base $170,000 = =$2.00 per machine-hour 85,000 machine-hours 2. The amount of overhead cost applied to Work in Process for the year would be: 80,000 machine-hours $2.00 per machine-hour = $160,000. This amount is shown in entry (a) below: Manufacturing Overhead (Utilities) 14, ,000 (a) (Insurance) 9,000 (Maintenance) 33,000 (Indirect materials) 7,000 (Indirect labour) 65,000 (Depreciation) 40,000 Balance 8,000 Work in Process (Direct materials) 530,000 (Direct labour) 85,000 (Overhead) (a) 160, Overhead is underapplied by $8,000 for the year, as shown in the Manufacturing Overhead account above. The entry to close out this balance to Cost of Goods Sold would be: Cost of Goods Sold... 8,000 Manufacturing Overhead... 8, Managerial Accounting, 6th Canadian Edition

2 Exercise 3-6 (continued) 4. When overhead is applied using a predetermined rate based on machine-hours, it is assumed that overhead cost is proportional to machine-hours. So when the actual level of activity turns out to be 80,000 machine-hours, the costing system assumes that the overhead will be 80,000 machine-hours $2.00 per machine-hour, or $160,000. This is a drop of $10,000 from the initial estimated total manufacturing overhead cost of $170,000. However, the actual total manufacturing overhead did not drop by this much. The actual total manufacturing overhead was $168,000 a drop of only $2,000 from the estimate. The manufacturing overhead did not decline by the full $10,000 because of the existence of fixed costs and/or because overhead spending was not under control. These issues will be covered in more detail in later chapters. Solutions Manual, Chapter 3 73

3 Problem 3-15 (45 minutes) 1. and 2. Cash Accounts Receivable Bal. 8, ,000 (l) Bal. 13, ,000 (k) (k) 197,000 (j) 200,000 Bal. 15,000 Bal. 16,000 Raw Materials Work in Process Bal. 7,000 40,000 (b) Bal. 18, ,000 (i) (a) 45,000 (b) 32,000 Bal. 12,000 (e) 40,000 (h) 60,000 Bal. 20,000 Finished Goods Prepaid Insurance Bal. 20, ,000 (j) Bal. 4,000 3,000 (f) (i) 130,000 Bal. 30,000 Bal. 1,000 Plant and Equipment Accumulated Depreciation Bal. 230,000 42,000 Bal. 28,000 (d) 70,000 Bal. Manufacturing Overhead Accounts Payable (b) 8,000 60,000 * (h) (l) 100,000 30,000 Bal. (c) 14,600 45,000 (a) (d) 21,000 14,600 (c) (e) 18,000 18,000 (g) (f) 2,400 Bal. 4,000 4,000 (m) 7,600 Bal. *$40, % = $60,000. Salaries & Wages Payable Retained Earnings (l) 90,000 93,400 (e) 78,000 Bal. 3,400 Bal. 88 Managerial Accounting, 6th Canadian Edition

4 Problem 3-15 (continued) Capital Stock Sales Commissions Expense 150,000 Bal. (e) 10,400 Administrative Salaries Expense Depreciation Expense (e) 25,000 (d) 7,000 Insurance Expense Miscellaneous Expense (f) 600 (g) 18,000 Cost of Goods Sold Sales (j) 120, ,000 (j) (m) 4, Overhead is underapplied. Entry (m) above records the closing of this underapplied overhead balance to Cost of Goods Sold. 4. DURHAM COMPANY Income Statement For the Year Ended December 31 Sales... $200,000 Less cost of goods sold ($120,000 + $4,000) ,000 Gross margin... 76,000 Less selling and administrative expenses: Depreciation expense... $ 7,000 Sales commissions expense... 10,400 Administrative salaries expense... 25,000 Insurance expense Miscellaneous expense... 18,000 61,000 Net operating income... $ 15,000 Solutions Manual, Chapter 3 89

5 Problem 3-21 (30 minutes) 1. Preparation Department predetermined overhead rate: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base $416,000 = =$5.20 per machine-hour 80,000 machine-hours Fabrication Department predetermined overhead rate: Predetermined = Estimated total manufacturing overhead cost overhead rate Estimated total amount of the allocation base $720,000 = =180% of materials cost $400,000 materials cost 2. Preparation Department overhead applied: 350 machine-hours $5.20 per machine-hour...$1,820 Fabrication Department overhead applied: $1,200 direct materials cost 180%... 2,160 Total overhead cost...$3, Total cost of job 127: Preparation Fabrication Total Direct materials... $ 940 $1,200 $2,140 Direct labour ,690 Manufacturing overhead... 1,820 2,160 3,980 Total cost... $3,470 $4,340 $7,810 Unit product cost for job 127: Average cost per unit = $7, units = $ per unit 106 Managerial Accounting, 6th Canadian Edition

6 Problem 3-21 (continued) 4. Preparation Fabrication Manufacturing overhead cost incurred... $390,000 $740,000 Manufacturing overhead cost applied: 73,000 machine-hours $5.20 per machine-hour ,600 $420,000 direct materials cost 180% ,000 Underapplied (or overapplied) overhead... $ 10,400 $(16,000) Solutions Manual, Chapter 3 107