Managerial Accounting
Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 2, Problem 1AE
To determine

Selling price: The cost incurred by selling the product in the market is known as the selling price.

Fixed overhead cost: The cost which does not vary even though there are changes in the business activity. Some of the costs which come under fixed overhead cost are rent, insurance, salaries etc.

Determine the missing figures. Once the figures are obtained, what is the change in the selling price if the fixed overhead cost is reduced to $300000 provided the total cost of Job 407 should be $2350.

Expert Solution & Answer
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Answer to Problem 1AE

Solution: There is a fall in the selling price since there is a change in the fixed overhead cost.

Explanation of Solution

This calculation should be done in the work book and it is explained below,

Part -1- Finding the missing figures:

    Chapter 2: Applying Excel
    Data
    Mark-up on job cost 75%
    Department
    Milling Assembly
    1 Machine hours 60000 3000
    2 Direct Labour Hours 8000 80000
    3 Total fixed manufacturing overhead cost $3,90,000.00 $5,00,000.00
    4 Variable manufacturing overhead per machine hour $2.00 $ -
    5 Variable manufacturing overhead per direct labour hour $ - $3.75
    Cost Summary for job 407 Department
    Milling Assembly
    6 Machine hours 90 4
    7 Direct Labour Hours 5 20
    8 Direct Materials $800.00 $370.00
    9 Direct Labour cost $70.00 $280.00
    Enter a formula into each of the cells marked with? below
    Step 1: Calculate the estimated total manufacturing overhead cost for each department
    Milling Assembly
    10 Total fixed manufacturing overhead (given) $3,90,000.00 $5,00,000.00
    11 Variable manufacturing overhead per machine hour or direct labour hour (given) $2.00 $3.75
    12 Total machine hours or direct labour hours (given) 60000 80000
    13 Total Variable manufacturing overhead (11 x 12) $1,20,000.00 $3,00,000.00
    14 Total manufacturing overhead (10 + 13) $5,10,000.00 $8,00,000.00
    Step 2: Calculate the pre-determined overhead rate in each department
    Milling Assembly
    15 Total manufacturing overhead (14) $5,10,000.00 $8,00,000.00
    16 Total machine hours or direct labour hours (given) 60000 80000
    17 Pre-determined overhead rate per machine hour or direct labour hour (15 divided by 16) $8.50 $10.00
    Step 3: Calculate the amount of overhead applied to both departments to Job 407
    Milling Assembly
    18 Pre-determined overhead rate per machine hour or direct labour hour (17) $8.50 $10.00
    19 Machine hours or direct labour hours for the job (given) 90 20
    20 Manufacturing overhead applied (18 x 19) $ 765.00 $ 200.00
    Step 4: Calculate the total job cost for Job 407
    Milling Assembly
    21 Direct Materials (given) $800.00 $370.00
    22 Direct labour cost (given) $70.00 $280.00
    23 Manufacturing overhead applied (20) $765.00 $200.00
    24 Total cost of Job 407 (21 + 22 + 23) $1,635.00 $850.00
    Total cost of Job 407 (Milling + Assembly) $2,485.00
    Step 5: Calculate the selling price for Job 407
    Milling Assembly
    25 Total cost of Job 407 ( 24) $1,635.00 $850.00
    26 Mark-up (24 x 75%) $1,226.25 $637.50
    27 Selling price of Job 407 (25 + 26) $2,861.25 $1,487.50
    Total Selling Price (Milling + Assembly) $4,348.75

Part 2: To find the selling price of the job 407 after changes in the fixed overhead cost.

    Chapter 2: Applying Excel
    Data
    Mark-up on job cost 75%
    Department
    Milling Assembly
    1 Machine hours 60000 3000
    2 Direct Labour Hours 8000 80000
    3 Total fixed manufacturing overhead cost $3,90,000.00 $5,00,000.00
    4 Variable manufacturing overhead per machine hour $2.00 $ -
    5 Variable manufacturing overhead per direct labour hour $ - $3.75
    Cost Summary for job 407 Department
    Milling Assembly
    6 Machine hours 90 4
    7 Direct Labour Hours 5 20
    8 Direct Materials $800.00 $370.00
    9 Direct Labour cost $70.00 $280.00
    Enter a formula into each of the cells marked with ? Below
    Step 1: Calculate the estimated total manufacturing overhead cost for each department
    Milling Assembly
    10 Total fixed manufacturing overhead (given) $3,00,000.00 $5,00,000.00
    11 Variable manufacturing overhead per machine hour or direct labour hour (given) $2.00 $3.75
    12 Total machine hours or direct labour hours (given) 60000 80000
    13 Total Variable manufacturing overhead (11 x 12) $1,20,000.00 $3,00,000.00
    14 Total manufacturing overhead) (10 + 13) $4,20,000.00 $8,00,000.00
    Step 2: Calculate the pre-determined overhead rate in each department
    Milling Assembly
    15 Total manufacturing overhead (14) $4,20,000.00 $8,00,000.00
    16 Total machine hours or direct labour hours (given) 60000 80000
    17 Pre-determined overhead rate per machine hour or direct labour hour (15 divided by 16) $7.00 $10.00
    Step 3: Calculate the amount of overhead applied to both departments to Job 407
    Milling Assembly
    18 Pre-determined overhead rate per machine hour or direct labour hour (17) $7.00 $10.00
    19 Machine hours or direct labour hours for the job (given) 90 20
    20 Manufacturing overhead applied (18 x 19) $630.00 $200.00
    Step 4: Calculate the total job cost for Job 407
    Milling Assembly
    21 Direct Materials (given) $800.00 $370.00
    22 Direct Labour cost (given) $70.00 $280.00
    23 Manufacturing overhead applied (20) $630.00 $200.00
    24 Total cost of Job 407 (21 + 22 + 23) $1,500.00 $850.00
    Total cost of Job 407 (Milling + Assembly) $2,350.00
    Step 5: Calculate the selling price for Job 407
    Milling Assembly
    25 Total cost of Job 407 ( 24) $1,500.00 $850.00
    26 Mark-up (14 x 75%) $1,125.00 $637.50
    27 Selling price of Job 407 (25 + 26 ) $2,625.00 $1,487.50
    28 Total Selling Price of Job 407 (Milling + Assembly) $4,112.50
Conclusion

The selling price of the Job 407 reduces from $4348.75 to $4112.50 since selling price is based on cost plus mark-up method. Hence, it is directly affected by the fall in Fixed Overhead cost.

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Chapter 2 Solutions

Managerial Accounting

Ch. 2 - Prob. 1QCh. 2 - What is absorption costing?Ch. 2 - What is normal costing?Ch. 2 - How is the unit product cost of a job calculated? Ch. 2 - Explain the four-step process used to compute a...Ch. 2 - What is the purpose of the job cost sheet in a...Ch. 2 - Explain why some production costs must be assigned...Ch. 2 - Why do companies use predetermined overhead rates...Ch. 2 - What factors should be considered in selecting an...Ch. 2 - If a company fully allocates all of its overhead...Ch. 2 - Would you expect the amount of applied overhead...Ch. 2 - Prob. 12QCh. 2 - What is a plantwide overhead rate? Whyare multiple...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 3AECh. 2 - This Excel worksheet relates to the Dickson...Ch. 2 - Prob. 1F15Ch. 2 - Prob. 2F15Ch. 2 - Prob. 3F15Ch. 2 - Prob. 4F15Ch. 2 - Prob. 5F15Ch. 2 - Prob. 6F15Ch. 2 - Prob. 7F15Ch. 2 - Prob. 8F15Ch. 2 - Prob. 9F15Ch. 2 - Prob. 10F15Ch. 2 - Prob. 11F15Ch. 2 - Sweeten Company had no jobs in progress at the...Ch. 2 - Prob. 13F15Ch. 2 - Prob. 14F15Ch. 2 - Prob. 15F15Ch. 2 - EXERCISE 2-1 Compute a Predetermined Overhead Rate...Ch. 2 - Prob. 2ECh. 2 - EXERCISE 2–3 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 24 Computing Total Job Costs and Unit...Ch. 2 - EXERCISE 2-5 Computing Total Job Costs and Unit...Ch. 2 - Prob. 6ECh. 2 - EXERCISE 2-7 Job-Order Costing; Working Backwards...Ch. 2 - EXERCISE 2-8 Applying Overhead Cost; Computing...Ch. 2 - EXERCISE 2–9 Job-Order Costing and Decision Making...Ch. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - Prob. 12ECh. 2 - EXERCISE 2—13 Departmental Predetermined Overhead...Ch. 2 - EXERCISE 214 Job-Orders Costing for a Service...Ch. 2 - Prob. 15ECh. 2 - PROBLEM 2—16 Plantwide Predetermined Overhead...Ch. 2 - PROBLEM 217 Plantwide and Departmental...Ch. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Prob. 20PCh. 2 - PROBLEM 2-21 Plant wide Versus Multiple...Ch. 2 - CASE 2-22 Plantwide versus Departmental Overhead...
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