Guess Klein produces designer clothing such as T-

shirts and jeans from fabric purchased from several nearby factories. The

company's factory has two departments, Cutting and Sewing. The Cutting

department, which cuts the garments from patterns, is a machine-intensive

operation. It takes three times longer to cut and sew jeans compared to T-

shirts. The Sewing department stitches the cut fabric, sews zippers and

buttons and does quality checking. While stitching is highly automated,

sewing zippers and buttons and performing quality checks is manual.

Direct materials are traced to individual products but direct labor is treated

as a single cost pool and averaged across all garments produced. Nearly 80%

of the labor hours in the Sewing department are for manual sewing of

zippers and buttons on jeans. T-shirts typically do not have zippers or

buttons.

The company uses a traditional department based overhead allocation

system. It assigns overhead to departments and charges them to products

using departmental rates. Cutting Department overhead is allocated using

machine hours and Sewing Department overhead is allocated using number

of garments produced. The indirect costs and the bases used for allocating

them to the departments are shown in the Table below. During the current

period, 50,000 jeans and 100,000 T-shirts were produced. A typical shipment

consists of 1,000 jeans and 2,000 T-shirts.

Table 1

Budgeted Cost Data for Guess Klein Garments

Directly Traced Costs:

Direct Materials

160,000 for cutting 40,000 for sewing and total 200,000

Direct Labor

120,000- cutting

75,000- sewing

195,000- total

Indirect Labor

10,000- cutting

10,000-sewing

20,000- total

Equipment depreciated & supplies

20,000- cutting

60,000- sewing

80,000- total

Indirect Costs allocated:

Repairs & maintenance (Machine hours)

?- cutting

?- sewing

200,000- total

Employee support costs (Labor hours)

?- cutting

?- sewing

120,000- total

Occupancy costs (Square feet)

?- cutting

?- sewing

70,000- total

TOTAL COST

885,000

Overhead Bases:

Machine Hours

3,000- Jeans

1,000- T-shirts

4,000- Total

Labor Hours

2,000 for Jean

4,000 for T-shirts

6,000- Total

Square Feet

3,000 for Jeans

2,000 for T-shirts

5,000 Total

Table 2

Budgeted Product Data for Guess Klein Garments

Direct Materials

125,000 for Jeans

75,000 for T-shirts

200,000 total

Direct Labor (Allocated on garments produced)

65,000 for jeans

130,000 for T-shirts

195,000 total

Machine Hours

3,000 for Jeans

1,000 for T-shirts

4,000 Total

Garments produced

50,000 for Jeans

100,000 for T-shirts

150,000 Total

Assume that the total Sewing Department budgeted overhead cost (both

direct and indirect) is $240,000.

Assume also that 160,000 garments were

actually produced during the year and that actual Sewing Department

overhead was $249,000.

During the year, overhead was: (Pick the correct answer from the options below)

1) Over applied by

$9,000

2) Over applied by

$7,000

3)Over applied by

$16,000

4) Under applied by

$7,000

MANAGERIAL ACCOUNTING QUIZ BABSON COLLEGE 2018