Question No. 1:

Medusa products use a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that 85,000 machine-hours would be required for the periods estimated level of production. The company also estimated $106,250 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $0.75 per machine-hour.

Required:

1. Compute the companys predetermined overhead rate
2. Assume that during the year the company actually works only 80,000 machine-hours and incurs the following costs in the Manufacturing Overhead and Work in Process accounts:

Manufacturing Overhead Work in Process

$	$
Utilities	14,000	?
Insurance	9,000
Maintenance	33,000
Ind. Materials	7,000
Ind. Labor	65,000
Depreciation	40,000

Dir. Materials	530,000
Dir. Labor	85,000
Overheads	?

Copy the data in the T-accounts above onto your answer sheet. Compute the amount of over-head cost that would be applied to Work in Process for the year, and make the entry in your T-accounts.

1. Compute the amount of under applied or over applied overhead for the year, and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close out the balance in this account to Cost of Goods Sold.
2. Explainwhythemanufacturingoverheadwasunderappliedoroverappliedfortheyear.

Question No. 2:

Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $60 per unit and has a CM ratio of 40%. The company's fixed expenses are $360,000 per year. The company plans to sell 17,000 bookbags this year. 1. What are the variable expenses per unit? 2. Using the equation method: a. What is the break-even point in units and in sales dollars? b. What sales level in units and in sales dollars is required to earn an annual profit of $90,000? c. Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $3 per unit. What is the company's new break-even point in units and in sales dollars? 3. Repeat (2) above using the formula method.