Variable-Costing Income Statement During the most recent year, Beyta Company had the following data: Units in beginning inventory Units produced 10,000 Units sold ($60 per unit) 8,800 Variable costs per unit: Direct materials $12 Direct labor $7 Variable overhead $5 Fixed costs: Fixed overhead per unit $8 $ produced Fixed selling and administrative $138,000 Overhead Application and Job-Order Costing Heunion Company is a job-order costing firm that uses a plantwide overhead rate based on direct labor hours. Estimated information for the year is as follows: $789,000 100,000 Overhead Direct labor hours Heurion worked on five jobs in July. Data are as follows: Job 741 Job 742 Job 743 Job 744 Job 745 Balance, July 1 $29,870 $55,215 $22,880 $0 SO Direct materials $25,500 $39,800 514,450 $13,600 $8,420 Direct labor cost $61,300 $28,700 $24,500 $21,300 $48,500 3,400 Direct labor hours 4,000 1,980 1,600 1,400 By July 31, Jobs 741 and 743 were completed and sold. The remaining jobs were in process Dansett (Appendix 46) Support Department Cont Allocation Comparison of Methods of Allocation Bender Automotive Works Inc. manufactures a variety of front-end assemblies for automobiles. A front-end assembly is the unified front of an automobile that includes the headlamps, fender, and surrounding metal/plastie. Bender has two producing departments: Drilling and Assembly. Usually, the front-end assemblies are ordered in batches of 100 Two support departments provide support for Bender's producing departments Maintenance and Power Budgeted data for the coming quarter totow. The company does not separate fixed and variable costs Support Departments Producing Departments Maintenance Power Drilling Assembly $320,000 $400,000 $163,000 $90,000 Machine hours 22,500 30,000 7,500 40,000 56.000 324,000 Direct labor hours 40,000 The predetermined overhead rate for Drilling in computed on the basis of machine hours. Direct labor hours are used for Assembly Recently, a truck manufacturer requested a bid on a 3-year contract that would supply front-end assemblies to a nearby factory. The prime costs for a batch of 100 front end assemblies are $1,817. It takes two machine hours to produce a baten in the drilling department and 50 direct labor hours to assemble the 100 front-end assemblies in the assembly department. Overhead costs Kilowatt-hours 5,000 Bender's policy is to bid full manufacturing cost, plus 15% 1. Prepare bids for Bender by using each of the following allocation methods (a) Direct method. (Note: Round allocation ratios, and the job cost components to two decimal places, it rounding is required) Tonya Martin, CMA and controller of the Parts Division of Gunderson Inc., was meeting with Doug Adams, manager of the division. The topic of discussion was the assignment of overhead costs to jobs and their impact on the division's pricing decisions. Their conversation was as follows: Tonyat Doug, as you know, about 25% of our business is based on government contracts, with the other 75% based on jobs from private sources won through bidding During the last several years, our private business has declined. We have been losing more bids than usual. After some careful Investigation, I have concluded that we are overpricing some jobs because of improper assignment of overhead costs. Some jobs are also being underpriced. Unfortunately, the jobs being overpriced are coming from our higher-volume, labor-intensive products, so we are losing business. Doug: I think I understand. Jobs associated with our high-volume products are being assigned more overhead than they should be receiving. Then when we add our standard 40% markup, we end up with a higher price than our competitors, who assign costs more accurately Tonya: Exactly. We have two producing departments, one labor-intensive and the other machine-Intensive. The tabor-intensive department generates much less overhead than the machine-intensive department. Furthermore, virtually all of our high-volume jobs are labor-intensive. We have been using a plantwide rate based on direct labor hours to assign overhead to all jobs. As a result, the high-volume, labor-Intensive jobs receive a greater shore of the machine-intensive department's overhead than they deserve. This problem can be greatly alleviated by switching to departmental overhead rates. For example, an average high-volume job would be assigned $100,000 of overhead using a plantwide rate and only $70,000 using departmental rates. The change would lower our bidding price on high-volume jobs by an average of $42,000 per job. By increasing the accuracy of our product costing, we can make better pricing decisions and win back much of our private sector business, Doug: Sounds good. When can you implement the change in overhead rates? Tonya: It won't take long. I can have the new system working within four to six weeks-certainly by the start of the new fiscal year. Doug Hold it. I just thought of a possible complication. As I recall, most of our government contract work is done in the labor-intensive department. This new overhead assignment scheme will push down the cost on the government jobs, and we will lose revenues. They pay us full cost plus our standard markup. This business is not threatened by our current costing procedures, but we can't switch our rates for only the private business. Government auditors would question the lack of consistency in our costing procedures. Tonya: You do have a point. I thought of this issue iso. According to my estimates, we will gain more revenues from the private sector than we will lose from our government contracts. Besides, the costs of our government jobs are distorted. In affect, we are overcharging the government Doug: They don't know that and never would unless we switch our overhead assignment procedures. I think I have the solution. Officially, let's keep our plant-wide overhead rate. All of the official records will reflect this overhead costing approach for both our private and government business. Unofficially, I want you to develop a Variable-Costing Income Statement During the most recent year, Beyta Company had the following data: Units in beginning inventory Units produced 10,000 Units sold ($60 per unit) 8,800 Variable costs per unit: Direct materials $12 Direct labor $7 Variable overhead $5 Fixed costs: Fixed overhead per unit $8 $ produced Fixed selling and administrative $138,000 Overhead Application and Job-Order Costing Heunion Company is a job-order costing firm that uses a plantwide overhead rate based on direct labor hours. Estimated information for the year is as follows: $789,000 100,000 Overhead Direct labor hours Heurion worked on five jobs in July. Data are as follows: Job 741 Job 742 Job 743 Job 744 Job 745 Balance, July 1 $29,870 $55,215 $22,880 $0 SO Direct materials $25,500 $39,800 514,450 $13,600 $8,420 Direct labor cost $61,300 $28,700 $24,500 $21,300 $48,500 3,400 Direct labor hours 4,000 1,980 1,600 1,400 By July 31, Jobs 741 and 743 were completed and sold. The remaining jobs were in process Dansett (Appendix 46) Support Department Cont Allocation Comparison of Methods of Allocation Bender Automotive Works Inc. manufactures a variety of front-end assemblies for automobiles. A front-end assembly is the unified front of an automobile that includes the headlamps, fender, and surrounding metal/plastie. Bender has two producing departments: Drilling and Assembly. Usually, the front-end assemblies are ordered in batches of 100 Two support departments provide support for Bender's producing departments Maintenance and Power Budgeted data for the coming quarter totow. The company does not separate fixed and variable costs Support Departments Producing Departments Maintenance Power Drilling Assembly $320,000 $400,000 $163,000 $90,000 Machine hours 22,500 30,000 7,500 40,000 56.000 324,000 Direct labor hours 40,000 The predetermined overhead rate for Drilling in computed on the basis of machine hours. Direct labor hours are used for Assembly Recently, a truck manufacturer requested a bid on a 3-year contract that would supply front-end assemblies to a nearby factory. The prime costs for a batch of 100 front end assemblies are $1,817. It takes two machine hours to produce a baten in the drilling department and 50 direct labor hours to assemble the 100 front-end assemblies in the assembly department. Overhead costs Kilowatt-hours 5,000 Bender's policy is to bid full manufacturing cost, plus 15% 1. Prepare bids for Bender by using each of the following allocation methods (a) Direct method. (Note: Round allocation ratios, and the job cost components to two decimal places, it rounding is required) Tonya Martin, CMA and controller of the Parts Division of Gunderson Inc., was meeting with Doug Adams, manager of the division. The topic of discussion was the assignment of overhead costs to jobs and their impact on the division's pricing decisions. Their conversation was as follows: Tonyat Doug, as you know, about 25% of our business is based on government contracts, with the other 75% based on jobs from private sources won through bidding During the last several years, our private business has declined. We have been losing more bids than usual. After some careful Investigation, I have concluded that we are overpricing some jobs because of improper assignment of overhead costs. Some jobs are also being underpriced. Unfortunately, the jobs being overpriced are coming from our higher-volume, labor-intensive products, so we are losing business. Doug: I think I understand. Jobs associated with our high-volume products are being assigned more overhead than they should be receiving. Then when we add our standard 40% markup, we end up with a higher price than our competitors, who assign costs more accurately Tonya: Exactly. We have two producing departments, one labor-intensive and the other machine-Intensive. The tabor-intensive department generates much less overhead than the machine-intensive department. Furthermore, virtually all of our high-volume jobs are labor-intensive. We have been using a plantwide rate based on direct labor hours to assign overhead to all jobs. As a result, the high-volume, labor-Intensive jobs receive a greater shore of the machine-intensive department's overhead than they deserve. This problem can be greatly alleviated by switching to departmental overhead rates. For example, an average high-volume job would be assigned $100,000 of overhead using a plantwide rate and only $70,000 using departmental rates. The change would lower our bidding price on high-volume jobs by an average of $42,000 per job. By increasing the accuracy of our product costing, we can make better pricing decisions and win back much of our private sector business, Doug: Sounds good. When can you implement the change in overhead rates? Tonya: It won't take long. I can have the new system working within four to six weeks-certainly by the start of the new fiscal year. Doug Hold it. I just thought of a possible complication. As I recall, most of our government contract work is done in the labor-intensive department. This new overhead assignment scheme will push down the cost on the government jobs, and we will lose revenues. They pay us full cost plus our standard markup. This business is not threatened by our current costing procedures, but we can't switch our rates for only the private business. Government auditors would question the lack of consistency in our costing procedures. Tonya: You do have a point. I thought of this issue iso. According to my estimates, we will gain more revenues from the private sector than we will lose from our government contracts. Besides, the costs of our government jobs are distorted. In affect, we are overcharging the government Doug: They don't know that and never would unless we switch our overhead assignment procedures. I think I have the solution. Officially, let's keep our plant-wide overhead rate. All of the official records will reflect this overhead costing approach for both our private and government business. Unofficially, I want you to develop a