Disney faces many situations where it needs to apply the decision tools learned in this chapter, such as using a job cost sheet to determine a film’s profitability. For example, assume Disney uses a job order cost system and applies overhead to production of its films on the basis of direct labor cost. In computing a predetermined overhead rate for the year 2017, the company estimated film production overhead to be $24 million and direct labor costs to be $20 million. In addition, it developed the following information.

Instructions 

Answer each of the following.

(a) Why is Disney using a job order cost system?

(b) On what basis does Disney allocate its film production overhead? Compute the predetermined overhead rate for 2017.

(c) Compute the amount of the under- or overapplied overhead for 2017.

(d) Disney had balances in the beginning and ending films in process and fi nished fi lms accounts as follows.

Determine the (1) cost of films produced and (2) cost of films sold for Disney during 2017. Assume that any under- or overapplied overhead should be included in the cost of films sold.

(e) During 2017, Film G408 (a short documentary film produced for a customer) was started and completed. Its cost sheet showed a total cost of $100,000, and Disney prices its film at 50% above its cost. What is the price to the customer if the company follows this pricing strategy?

Transcribed Image Text:

Actual Costs Incurred During 2017 Direct materials used Direct labor cost incurred Insurance, studio Indirect labor Studio maintenance Rent on studio building Depreciation on studio equipment $30,000,000 21,000,000 500,000 7,500,000 1,000,000 11,000,000 2,000,000