Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price

Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts.

The controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected the relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1 and client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus contracts.

Manufacturing overhead for year 3 is estimated to be $38 million. Other budgeted data for year 3 include:

Client 1 Client 3 Machine-hours (thousands) 5,700 13,300 Direct labor cost ($000) $5,000 5,000

a.Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead.

b.Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting Information for Decision-Making and Strategy Execution

Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young

6th Edition

137024975, 978-0137024971

More Books

Students also viewed these Accounting questions