Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
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Chapter 2.B, Problem 1E
EXERCISE 2B-1 Overhead Rate Based on Capacity LO2-6
Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty7 woods. The company uses a
The results of a recent month’s operations appear below:
Required:
- Prepare an income statement following the example in Exhibit 2B-1 that records the cost of unused capacity on the income statement as a period expense.
- Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?
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Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
RelyaTech Corporation makes 46,000 tiny wheels to be used in the production of its Beautiful Product. The average cost per tiny wheel at this level of activity
is:
S
$10.50
$9.50
$ 3.95
$ 4.90
Multiple Choice
Help Save & Exit
(ID#13108)
An outside manufacturer, called GreatWheel, recently began producing a comparable tiny wheel that could be used in the Beautiful Product. The price
offered to RelyaTech Corporation to supply them with this tiny wheel is $26.95.
If RelyaTech Corporation decides not to make the wheels, there would be no other use for the production facilities and none of the fixed manufacturing
overhead cost could be avoided.
($87,400)
Direct labor is a variable cost in this company.
Q) What would be the annual financial advantage (disadvantage) for RelyaTech as a result of continuing to make the wheels rather than buying them from the
outside supplier?
Problem A.
Wyoming Company manufactures radios in two different styles:
Radio Model Annual Sales in Units
Starry 10,000
Polka 16,000
Wyoming uses a traditional volume-based costing system in applying factory overhead using direct labor pesos. The unit prime costs of each product were as follows:
Starry Polka
Direct Materials
P38.00
P25.40
Direct labor:
1.2 x P14.60
17.52
0.9 x P14.60
13.14
The predetermined overhead rate was P350% (P1,349,040 ÷ 385,440) Direct labor budget per annual sales:
Starry radio
10,000 x P17.52
P175,200
Polka radio
16,000 x P13.14
210,240
Total
P385,440
Factory overhead:…
Number 4
Smithson, Inc. produces two types of gas grills: a family model and a deluxe model. Smithson's
controller has decided to use a plantwide overhead rate based on direct labor costs The
president of the company recently heard of activity-based costing and wants to see how the
results would differ if this system were used. Two activity cost pools were developed:
machining and machine setup. Presented below is information related to the company's
operations:
Family Model
$75,000
2,000
200
Deluxe Model
$150,000
2,000
800
Direct labor costs
Machine hours
Setup hours
cton
Total estimated overhead costs are $450,000. Overhead cost allocated to the machining
activity cost pool is $270,000 and $180,000 is allocated to the machine setup activity cost pool
Instructions
Compute the overhead rate using the traditional (plantwide) approach.
Compute the overhead rates using the activity-based costing approach.
Determine the difference in allocation between the two approaches.
Smithson, Inc.…
Chapter 2 Solutions
Managerial Accounting
Ch. 2.A - EXERCISE 2A-1 Activity-Based Absorption Costing...Ch. 2.A - EXERCISE 2A-2 Activity-Based Absorption Costing as...Ch. 2.A - EXERCISE 2A-3 Activity-Based Absorption Costing as...Ch. 2.A - PROBLEM 2A-4 Activity-Based Absorption Costing as...Ch. 2.A - Prob. 5PCh. 2.A -
CASE 2A-6 Activity-Based Absorption Costing and...Ch. 2.B - EXERCISE 2B-1 Overhead Rate Based on Capacity...Ch. 2.B - EXERCISE 2B-2 Overhead Rates and Capacity Issues...Ch. 2.B - Prob. 3PCh. 2.B - Prob. 4C
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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