Question
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
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:
- Compute the companys predetermined overhead rate
- 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.
- 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.
- 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.
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