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Chapter 19: Q15E (page 1068)

Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.

Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?

Short Answer

Expert verified

Predetermined overhead allocation rate: $1.4

Overhead amount for basic model: $322,000

Overhead amount for professional model:$399,000

Step by step solution

01

Calculation of predetermined overhead allocation rate

Predeterminedoverheadallocationrate=TotalestimatedoverheadTotalestimatedmachinehour=$721,000515,000=$1.4

02

Calculation of overhead for basic and professional model

Overheadamountforbasicmodel=predetrminedoverheadallocationratexmachinehourusedbybasicmodel

=$1.4x230,00=$322,000

localid="1654597806848" Overheadamountforprofessionalmodel=predetruminedoverheadallocationratexmachinehourusedbyprofessionalmodel =$1.4×285,000=$399,000

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Most popular questions from this chapter

Refer to Exercises E19-20 and E19-21. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. Market research shows that for the deluxe rim to provide a reasonable profit, Eason will have to meet a target manufacturing cost of \(625.00 per rim. A value engineering study by Eason’s employees suggests that modifications to the finishing process could cut finishing cost from \)90.00 to \(60.00 per hour and reduce the finishing direct labor hours per deluxe rim from 5.50 hours to 5.0 hours. Direct materials would remain unchanged at \)48.00 per rim, as would direct labor at $52.00 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same.

Would implementing the value engineering recommendation enable Eason to achieve its target cost for the deluxe rim?

Question:Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity.

Activity Predicted Predetermined

Reduction in Overhead Allocation

Activity Units Rate per Unit

Inspection of incoming raw materials 390 $ 44

Inspection of finished goods 390 19

Number of defective units discovered in-house 1,200 50

Number of defective units discovered by customers 325 72

Lost profits due to dissatisfied customers 75 102

Requirements

3. What major difficulty would Stella’s managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement?

What is a just-in-time management system?

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.

Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

___________________________________________________________________

Activity Estimated Allocation Base Estimated Quantity

Cost of Allocation

Base____

Admission \) 60,000 Number of admissions 20,000

Cleaning 240,000 Cleaning direct labor hours 100,000

Grooming 80,000 Grooming direct labor hours 4,000

Total indirect costs $ 380,000________________________________________

Requirements

1. Calculate the predetermined overhead allocation rate for each activity.

Malone Company has adopted a JIT management system and has the following transactions in August:

a. Purchased raw materials on account, \(50,000.

b. Incurred labor and overhead costs, \)70,000.

c. Completed 500 units with standard costs of \(95 for direct materials and \)150 for conversion costs.

d. Sold on account 475 units for $300 each.

10. Record the journal entries for Malone Company for August.

11. Open a T-account for Conversion Costs
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