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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

What is a just-in-time management system?

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.

A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

___________________________________________________________________

Activity Allocation Base Predetermined Overhead

Allocation Rate____

Materials handling Number of parts \) 0.85

Machine setup Number of setups 500.00

Assembling Number of assembling hours 80.00

Shipping Number of shipments 1,500.00_______

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

____________________________________________________________

Job A Job B__

Number of parts 15,000 2,000

Number of setups 6 4

Number of assembling hours 1,500 200

Number of shipments 1 1

Total direct labor hours 8,000 600

Number of units produced 100 10

Direct materials cost \( 220,000 \) 30,000

Direct labor cost \( 160,000 \) 12,000__

Requirements

2. Suppose Harris Systems adopts the ABC system. Compute the budgeted product cost per unit for each job using ABC.

Stegall, Inc. manufactures motor scooters. For each of the following examples of quality costs, indicate which of the following quality cost categories each example represents: prevention costs, appraisal costs, internal failure costs, or external failure costs.

1. Preventive maintenance on machinery

2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection

3. Lost profits from lost sales if the company’s reputation is hurt because customers previously purchased a poor-quality scooter

4. Cost of inspecting raw materials, such as chassis and wheels

5. Working with suppliers to achieve on-time delivery of defect-free raw materials

6. Cost of warranty repairs on a scooter that malfunctions at a customer’s location

7. Costs of testing durability of vinyl

8. Cost to reinspect reworked scooters

Koehler (see Exercise E19-15) makes handheld calculators in two models—basic and professional—and wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:

Assembly Packaging

Department Department Total

Overhead costs \) 456,500 \( 264,500 \) 721,000

Machine hours:

Basic Model 185,000 MHr 45,000 MHr 230,000 MHr

Professional Model 230,000 MHr 55,000 MHr 285,000 MHr

Total 415,000 MH 100,000 MHr 515,000 MHr

Direct labor hours:

Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr

Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr

Total 125,125 DLHr 330,625 DLHr 455,750 DLHr

Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.

Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar’s activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 240,000

Number of parts

\)1.00

Assembly

3,500,000

Number of assembling direct labor hours

17.00

Finishing

190,000

Number of finished units*

4.50

*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

7,000

\(91,000

\)105,000

28,000

10,500

Unfinished bookcase

7,500

82,500

75,000

22,500

7,500

Requirements

4. What price should Oscar’s managers set for unfinished bookcases to earn a net profit of $19 per bookcase?
See all solutions

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