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1 MBB3344: COST ACCOUNTING TUTORIAL 4: ACCOUNTING FOR FACTORY OVERHEAD SEMESTER 1, 2013/14 Question 1: What are distinguishing characteristics of variable, fixed, and semi-variable factory overhead cost? Question 2: When a product's cost is composed of both fixed and variable costs, what effect does the increase or decrease in production have on per unit cost? Question 3: Classify each of the following items of factory overhead as either a fixed or a variable cost. (Include any costs that you consider to be semi-variable within the variable category. Remember that variable costs change in total as the volume of production changes.) a. Indirect labour b. Indirect materials c. Insurance on building d. Overtime premium pay e. Depreciation on building (straight-line) f. Polishing compounds g. Depreciation on machinery (based on machine hours used) h. Employer's payroll taxes i. Property taxes j. Machine lubricants k. Employees' hospital insurance (paid by employer) l. Labor for machine repairs m. Vacation pay n. Janitor's wages o. Rent p. Small tools q. Plant manager's salary r. Factory electricity s. Product inspector's wages Question 4: Copper Mountain Company has accumulated the following data over a six-month period: Indirect labour hours Indirect labour costs January 400 $6,000 February 500 7,000 March 600 8,000 April 700 9,000 May 800 10,000 June 900 11,000 3,900 $51,000 (a) Separate the indirect labour into fixed and variable components, using the high-low method. (b) (i) (ii) Using the data above and a piece of graph paper, plot the data points on the graph and draw line by visual inspection, indicating the trend shown by the data points. Determine the variable cost per unit and the total fixed cost from the information on the graph. 2 MBB3344: COST ACCOUNTING TUTORIAL 4: ACCOUNTING FOR FACTORY OVERHEAD SEMESTER 1, 2013/14 Question 5: Scentsation, Inc., budgeted for 12,000 bottles of perfume Oui during the month of May. The unit cost of Oui was $20, consisting of direct materials, $7; direct labour, $8; and factory overhead, $5 (fixed, $2; variable, $3). (a) What would be the unit cost if 10,000 bottles were manufactured? (Hint: You must first determine the total fixed costs.) (b) What would be the unit cost if 20,000 bottles were manufactured? (c) Explain why a difference occurs in the unit costs. Question 6: Job 401K required $5,000 for direct materials, $2,000 for direct labour, 200 direct labour hours, 100 machine hours, two setups, and three design changes. The cost pools and overhead rates for each pool follow: Cost Pool Overhead Rate Assembly support $5 / direct labour hour Machine support $10 / machine hour Machine setups $250 / setup Design changes $500 / design change Required: Determine the cost of Job 401K. Question 7: The books of Prestige Products Company revealed that the following general journal entry had been made at the end of the current accounting period: Factory Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Under- and Overapplied Factory Overhead . . . . . . . . . . . . . 2,000 Closed credit balance in factory overhead control account. The total direct materials cost for the period was $40,000. The total direct labour cost, at an average rate of $10 per hour for direct labour, was one and one-half times the direct materials cost. Factory overhead was applied on the basis of $4 per direct labour hour. What was the total actual factory overhead incurred for the period? (Hint: First solve for direct labour cost and then for direct labour hours.) Question 8: ETA Company had a remaining credit balance of $20,000 in its under- and overapplied factory overhead account at year-end. The balance was deemed to be large and, therefore, should be closed to Work in Process, Finished Goods, and Cost of Goods Sold. The year-end balances of these accounts, before adjustment, showed the following: Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,000 Finished Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$150,000 (a) Determine the prorated amount of the over-applied factory overhead that is chargeable to each of the accounts. (b) Prepare the journal entry to close the credit balance in Under- and Over-applied Factory Overhead