Question
The Shoe Factory produces two types of shoes: Walking and Running. The following budgeted information is available: Walking Running Units produced and sold 10,000 12,000
The Shoe Factory produces two types of shoes: Walking and Running. The following budgeted information is available:
Walking | Running | |
Units produced and sold | 10,000 | 12,000 |
Price per unit | $100 | $150 |
Direct material costs | $140,000 | $120,000 |
Direct labor costs | $45,000 | $31,400 |
Production runs | 50 | 150 |
Machine hours | 400 | 1,800 |
Total overhead costs are $1,910,000. The firm estimates these overhead costs consist of the following activities and has selected the following cost drivers for these activities:
Activity | Cost | Cost Driver |
Production setups | $810,000 | Production runs |
Machine time | $1,100,000 | Machine hours |
Assume all actual costs were equal to budgeted costs.
a. What is the total cost for Walking shoes if overhead is allocated based on direct labor costs?
b. What is the overhead allocation for Walking shoes if overhead is allocated using activity-based costing?
c. Are the firm's total profits (including both shoe types) higher, lower, or the same if overhead is assigned using direct labor costs instead of activity-based costing? Justify your answer.
CC Cosmetics uses a normal costing system and had the following data available for 2016:
Budgeted | Actual | |
Direct material costs | $50,000 | $40,000 |
Direct labor costs | $80,000 | $75,000 |
Overhead costs | $120,000 | $122,500 |
Beginning | Ending | |
Direct materials inventory | $26,000 | $15,000 |
WIP inventory | $40,000 | $25,000 |
Finished goods inventory | $54,000 | $31,000 |
CC allocates overhead costs based on direct labor costs.
a. What is the amount of direct materials purchased in 2016?
b. What is the overhead rate for 2016?
c. What is the overhead variance (amount and whether over- or under-applied)?
d. What is cost of goods manufactured for the period?
Rumor Manufacturing Co. makes customized vans. Rumor employs a normal job-order costing system with overhead allocated based on direct labor hours and started the month of January with no inventories at all. During the month, work was started on three vans, Vans 1, 2, and 3. The following information is given:
(a) Budgeted manufacturing overhead for January: $30,000
(b) Budgeted direct-labor hours for January: 5,000 hours
(c) Direct materials purchased in January: $400,000
(d) Direct materials placed into production in January:
Van 1: $100,000
Van 2: $50,000
Van 3: $75,000
(e) Direct labor hours worked in January:
Van 1: 1,800 hours
Van 2: 2,400 hours
Van 3: 1,800 hours
(f) Actual manufacturing overhead incurred in January: $37,500
(g) Actual direct labor cost per hour in January: $10
Van 1 was completed and transferred to finished goods but not sold at the end of the month, Van 2 was completed and sold during the month, and Van 3 was not finished at the end of the month.
a. What is the value of the direct materials inventory at the end of January?
b. What is the value of the WIP inventory at the end of January?
c. What is cost of goods sold for January?
Woolworth makes several clothing products. The company uses a normal costing system and allocates overhead based on direct labor cost. Information for Woolworth in 2016 is as follows:
Budgeted | Actual | |
Manufacturing overhead costs | $120,000 | $100,000 |
Direct labor costs | $100,000 | $80,000 |
Direct material costs | $225,000 | $222,000 |
Two of the products that Woolworth manufactures are sweaters and socks. Actual costs for sweater and sock production in 2016 are as follows:
Sweaters | Socks | |
Direct labor costs | $15,000 | $20,000 |
Direct material costs | $20,000 | $6,000 |
a. What is the predetermined overhead rate?
b. Which product does Woolworth allocate more overhead to in 2016? Justify your answer.
CHOOSE ONE: SWEATERS SOCKS SAME FOR BOTH
c. If Woolworth allocated overhead based on direct materials cost rather than direct labor cost, which product would Woolworth allocate more overhead to in 2016? Justify your answer.
CHOOSE ONE: SWEATERS SOCKS SAME FOR BOTH
BC Corp. uses a normal costing system and had the following data available for the year:
Budgeted | Actual | |
Direct material costs | $100,000 | $90,000 |
Direct labor costs | $85,000 | $95,000 |
Overhead costs | $140,000 | $130,500 |
Beginning | Ending | |
Direct materials inventory | $66,000 | $55,000 |
WIP inventory | $25,000 | $45,000 |
Finished goods inventory | $51,000 | $21,000 |
BC applies overhead based on direct material costs.
a. What is the firm's predetermined overhead rate?
b. Does the firm have an overhead variance? If so, what is the amount and is it over- or under-applied?
c. Job B was started and completed during the year. Budgeted direct material and direct labor costs for the job were $10,000 and $15,000, respectively. Actual direct material and direct labor costs were $15,000 and $18,000, respectively. What was the total cost of Job B?
d. If the firm used actual costing instead of normal costing, would your answer to part (c) be higher, lower, or the same? Justify your answer.
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