Nautical Creations manufactures high-end boat accessories for large custom yachts. Nautical has always applied manufacturing overhead using a traditional predetermined overhead rate based on direct labor hours, this year it is $45 per DLH. Nautical is currently evaluating the use of activity-based driver rates to apply the variety of its manufacturing overhead cost items and has assembled the following overhead activity drivers, budgeted amounts, and actual activity required to produce Job number 258. Overhead Activity Driver Budgeted Cost Budgeted Activity Machining time $ 200,000 5,000 hours Direct labor time $ 220,000 10,000 hours Quality inspection time $30,000 2,000 hours Using the traditional method of applying manufacturing overhead, the amount of overhead applied to Job number 258 would be: Multiple Choice A) $44,600. B) $36,000. C) $72,000. Incorrect D) $63,000. Activity used on Job number 258 600 hours 800 hours 200 hours

Nautical Creations manufactures high-end boat accessories for large custom yachts. Nautical has always applied manufacturing overhead using a traditional predetermined overhead rate based on direct labor hours, this year it is $45 per DLH. Nautical is currently evaluating the use of activity-based driver rates to apply the variety of its manufacturing overhead cost items and has assembled the following overhead activity drivers, budgeted amounts, and actual activity required to produce Job number 258. Overhead Activity Driver Budgeted Cost Budgeted Activity Machining time $ 200,000 5,000 hours Direct labor time $ 220,000 10,000 hours Quality inspection time $30,000 2,000 hours Using the traditional method of applying manufacturing overhead, the amount of overhead applied to Job number 258 would be: Multiple Choice A) $44,600. B) $36,000. C) $72,000. Incorrect D) $63,000. Activity used on Job number 258 600 hours 800 hours 200 hours

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Description: Nautical Creations manufactures high-end boat accessories for large custom yachts. Nautical has always appliedmanufacturing overhead using a traditional predetermined overhead rate based on direct labor hours, this year it is $45per DLH. Nautical is

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter5: Product And Service Costing: Job-order System

Section: Chapter Questions

Problem 27P: Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming...

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San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateos predetermined overhead rates for 20x1 and 20x2 were based on the following estimates. Jim Cimino, San Mateos controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateos management team, Cimino plans to convert the companys income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateos 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc. Comparative Income Statement For the Years 20x1 and 20x2 San Mateos actual manufacturing data for the two years are as follows: The companys actual inventory balances were as follows: For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any over-or underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. 2. Describe two advantages of using variable costing rather than absorption costing. (CMA adapted)
Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?
Plata Company has identified the following overhead activities, costs, and activity drivers for the coming year: Plata produces two models of microwave ovens with the following activity demands: The companys normal activity is 21,000 machine hours. Calculate the total overhead cost that would be assigned to Model X using an activity-based costing system: a. 230,000 b. 240,000 c. 280,000 d. 190,000
Compute the total job cost for each of the following scenarios: a. If the direct labor cost method is used in applying factory overhead and the predetermined rate is 100%, what amount should be charged to Job 2010 for factory overhead? Assume that direct materials used totaled 5,000 and that the direct labor cost totaled 3,200. b. If the direct labor hour method is used in applying factory overhead and the predetermined rate is 10 an hour, what amount should be charged to Job 2010 for factory overhead? Assume that the direct materials used totaled 5,000, the direct labor cost totaled 3,200, and the number of direct labor hours totaled 250. c. If the machine hour method is used in applying factory overhead and the predetermined rate is 12.50 an hour, what amount should be charged to Job 2010 for factory overhead? Assume that the direct materials used totaled 5,000, the direct labor cost totaled 3,200, the direct labor hours were 250 hours, and the machine hours were 295 hours.
CleanCom Company specializes in cleaning commercial buildings and construction sites. Each building and site is different, requiring amounts and types of supplies and labor for each job. CleanCom estimated the following for the year: During the year, the following actual amounts were experienced: If CleanCom uses a normal costing system and overhead is applied on the basis of direct labor hours, what is the cost of cleaning a construction site that takes 140 of direct materials and 21 direct labor hours? a. 455 b. 508 c. 648 d. 644
Rulers Company is a neon sign company that estimated overhead will be $60,000, consisting of 1,500 machine hours. The cost to make Job 416 is $95 in neon, 15 hours of labor at $13 per hour, and five machine hours. During the month, it incurs $95 in indirect material cost, $130 in administrative labor, $320 in utilities, and $350 in depreciation expense. What is the predetermined overhead rate if machine hours are considered the cost driver? What is the cost of Job 416? What is the overhead incurred during the month?
Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?
Acb system manufactures specialty electrical systems for luxury yachts. Since the systems are unique, Acb designs each piece to customer specifications. The company uses a job-order cost system and applies overhead on the basis of labor hours using a predetermined overhead rate. For the year, budgeted manufacturing overhead is $7,800,000 and the expected activity level is 120,000 labor hours. Data regarding jobs in October are presented below. Balance Direct Direct Labor 9/31/2023 Materials Labor Hours A $187,576 $68,657 $28,400 950 B 169,745 17,625 12,160 400 C 103,900 21,680 15,460 515 D 18,670 167,400 48,000 1,600 E 0 115,000 136,800 4,560 F 0 28,900 12,580 420 By the end of October 2020, all jobs but E and F were completed, and all completed jobs had been delivered to customers with the exception of C and D. 1. What is the WIP Ending Balance for September? 2. What is the amount of COGM for…
Jasper Carts manufactures custom carts for a variety of uses. The following data have been recorded for Job 651, which was recently completed. Direct materials used cost $7,700. There were 178 direct labor hours worked on this job at a direct labor wage rate of $22 per hour. There were 90 machine hours used on this job. The predetermined overhead rate is $32 per machine hour used. What is the total manufacturing cost of Job 651?
Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders 145000 500 orders Machine Setup Setup 319500 450 setups Machining Machine hours 1575000 125000 MH Assembly Parts 1250000 1000000 parts Inspection Inspections 325000 500 inspections If overhead is applied using activity-based-costing, the overhead application rate for ordering and receiving is?
Lovell Equestrian Gear utilizes an activity based costing system for allocating overhead costs. The predetermined overhead rate for each activity are summarized below. Activity POHR Manufacturing $6.50 / machine hour Assembly $12.00 / direct labor hour Quality Control $1,500 / batch During the year, 3 batches, 12,000 machine hours, and 5,500 direct labor hours actually occurred in the production process. Based on the information provided, what is the total applied manufacturing overhead costs?
Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 85000 500 orders Machine Setup Setups 265500 450 setups Machining Machine hours 1412500 125000 MH Assembly Parts 1130000 1000000 parts Inspection Inspections 265000 500 inspections If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is $ 0.09 per part. $ 170 per order. $ 6316 per order. $ 0.85 per direct labor hour.