11 Allocating overhead cost among products LO 12-3

Chandler Hats Corporation manufactures three different models of hats: Vogue, Beauty, and Glamour. Chandler expects to incur $644,000 of overhead costs during the next fiscal year. Other budget information follows.

	Vogue			Beauty			Glamour			Total
Direct labor hours		4,200			6,200			3,600			14,000
Machine hours		2,000			2,200			2,240			6,440

Required

a.

Use direct labor hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product.

PRODUCTION ALLOCATION x WEIGHT = ALLOCATED COST

VOGUE

BEAUTY

GLAMOUR

TOTAL

b.

Use machine hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product.

PRODUCTION ALLOCATION x WEIGHT = ALLOCATED COST

VOGUE

BEAUTY

GLAMOUR

TOTAL

5 How credit terms affect financial statements LO 7-5

Dodson Co. is planning to finance an expansion of its operations by borrowing $53,200. City Bank has agreed to loan Dodson the funds. Dodson has two repayment options: (1) to issue a note with the principal due in 10 years and with interest payable annually or (2) to issue a note to repay $5,320 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 10 percent for each option.

Required
a.	What amount of interest will Dodson pay in year 1? (Round your answers to nearest whole dollar amount.)

(1) UNDER OPTION 1 ( )

(2) UNDER OPTION 2 ( )

b.	What amount of interest will Dodson pay in year 2? (Round your answers to nearest whole dollar amount.)

(1) UNDER OPTION 1 ( )

(2) UNDER OPTION 2 ( )