Activity-Based Costing Cost Flows (L02, L03, L05)

Munoz Corporation uses activity-based costing to determine product costs for external financial reports. At the beginning of the year, management made the following estimates of cost and activity in the company's five activity cost pools:

Activity Cost Pool Labor related Activity Measure Direct labor-hours Estimated Overhead Cost

$210,000 S72,000 S1 68,000

$315,000

$840,000 Expected Activity 35,000 DLHs 900 orders 1 ,400 tests 10,500 templates 70,000 MHs Purchase orders Product testing

, . Number of orders Number of tests Template etching General factory

. . . Number of templates Machine-hours Required:

1

.

Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools.

2. During the year, actual overhead cost and activity were recorded as follows:

Activity Cost Pool Labor related Purchase orders Product testing Template etching General factory Total manufacturing overhead cost il Overhead Cost Actual Activity S 205,000 32,000 DLHs 74,000 950 orders 160,000 1 ,300 tests 338,000 1 1 ,500 relays 825,000 68,000 MHs

$1,602,000

a. Prepare a journal entry to record the incurrence of actual manufacturing overhead cost for the year

(credit Accounts Payable). Post the entry to the company's Manufacturing Overhead T-account.

b. Determine the amount of overhead cost applied to production during the year.

c. Prepare a journal entry to record the application of manufacturing overhead cost to work in process for the year. Post the entry to the company's Manufacturing Overhead T-accoimt.

d. Determine the amount o\~ underapplied or o\ erapplied manufacturing overhead for the year.
The actual actrv ity for the year was distributed among the company's four products as follows:
Activity Cost Pool Labor related (DLHs)
Purchase orders (orders) . . .
Product testing (tests)
Template etching (templates)
General factory (MHs)
Actual Activity Product A Product B Product C Product D 6,000 7,500 10,000 8,500 150 300 100 400 400 175 225 500 4,500 7,000 10,000 20,000 17,000 21 ,000

a. Determine the total amount of overhead cost applied to each product.

b. Does the total amount of overhead cost applied to the products above tie in to the T-accounts in any way? Explain.