Question 1

Long Industries uses a job-order costing system.The Moulding Department applies overhead based on machine hours,while the Assembly Department applies overhead based on direct labour hours.The company made the following estimates at the beginning of the current year: $\begin{array}{lcc}
& \text { Moulding } & \text { Assembly } \
\text { Manufacturing overhead cost }  & \$ 600,000 & \$ 400,000 \
\text { Machine hours } & 10,000 & 4,000 \
\text { Direct labour hours } & 12,000 & 16,000
\end{array}$ The following information was available for Job No.7-29,which was started and completed during July:
$\begin{array}{lrr}&\text { Job No. 7-29 }\
&\text { Moulding }&\text { Assembly }\
\text { Direct materials } & \$ 3,500 & \$ 7,500 \
\text { Direct labour } & \$ 9,000 & \$ 12,500 \
\text { Direct labour hours } & 900 & 1,250 \
\text { Marhine hours } & 500 & 400
\end{array}$ What is the predetermined overhead rate for the Moulding Department?

Accepted Answer

The predetermined overhead rate for the Moulding Department is calculated by dividing the total estimated manufacturing overhead cost by the total estimated machine hours. For the Moulding Department, this is $600,000 / 10,000 hours = $60 per machine hour.

Question 2

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given:
$\begin{array}{|c|c|}
\hline \text { Actual overhead } & \$ 325,000 \
\hline \text { Estimated overhead } & \$ 350,000 \
\hline \text { Estimated activity: } & \
\hline \text { 9 volt battery } & 100,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \text { direct labour hours } \\hline \text { Actual activity: } & \
\hline 9 \text { volt battery } & 125,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \quad \text { direct labour hours } \\hline \text { Units produced: } & \
\hline 9 \text { volt battery } & 500,000 \
\hline \text { AAA battery } & 250,000 \
\hline
\end{array}$
-Refer to the figure.What is the predetermined overhead rate (rounded to two decimal places)?

Accepted Answer

The answer of The Hampshire Company produces 9 volt batteries...

Question 3

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given:
$\begin{array}{|c|c|}
\hline \text { Actual overhead } & \$ 325,000 \
\hline \text { Estimated overhead } & \$ 350,000 \
\hline \text { Estimated activity: } & \
\hline \text { 9 volt battery } & 100,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \text { direct labour hours } \\hline \text { Actual activity: } & \
\hline 9 \text { volt battery } & 125,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \quad \text { direct labour hours } \\hline \text { Units produced: } & \
\hline 9 \text { volt battery } & 500,000 \
\hline \text { AAA battery } & 250,000 \
\hline
\end{array}$
-Refer to the figure.How much overhead is applied to 9 volt batteries and AAA batteries (rounded to two decimal places),respectively?

Accepted Answer

The overhead rate is calculated based on estimated figures. The estimated overhead is $350,000, and the total estimated direct labor hours are 500,000 (100,000 for 9 volt + 400,000 for AAA). So, the overhead rate per direct labor hour is $350,000 / 500,000 = $0.70 per hour. For 9 volt batteries, the actual direct labor hours are 125,000, so the applied overhead is 125,000 hours * $0.70 = $87,500. For AAA batteries, the actual direct labor hours are 400,000, so the applied overhead is 400,000 hours * $0.70 = $280,000.

Question 4

The following information pertains to Black Corporation for the current year: 
$\begin{array}{llr}
  \text {  Estmated total overhead costs for the current year} &\$37,500\
 \text {Estimated direct labour costs for the current year  } &25,000\
 \text {  Actual direct labour costs} &22,500\
 \text { Actual overhead costs } &36,000\
 \text {  Activity base} &\text { Direct labour cost } &\
\end{array}$
 What is the predetermined overhead rate for Black Corporation for the current year?

Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total overhead costs by the estimated direct labor costs. Therefore, $ \$37,500 / \$25,000 = 1.5 $ or 150%.

Question 5

Cabrini Company produces two products: toy trucks and toy cars. The company uses departmental overhead rates for the two production departments: Moulding and Finishing. Moulding uses machine hours to assign overhead and Finishing uses direct labour hours; 50,000 trucks and 250,000 cars are produced. Please find the following data:
$\begin{array}{|l|c|c|c|}
\hline & \text { Moulding } & \text { Finishing } & \text { Total } \
\hline \text { Estimated overhead } & \$ 250,000 & \$ 100,000 & \$ 350,000 \
\hline \text { Actual overhead } & \$ 240,000 & \$ 120,000 & \$ 360,000 \
\hline & & & \\hline \text { Expected direct labour hours } & & & \
\hline \text { Trucks } & 5,000 & 5,000 & 10,000 \
\hline \text { Cars } & 5,000 & 35,000 & 40,000 \
\hline \text { Expected machine hours } & & & \\hline \text { Trucks } & 17,000 & 3,000 & 20,000 \
\hline \text { Cars } & 3,000 & 7,000 & 10,000 \
\hline \text { Actual direct labour hours } & & & \
\hline \text { Trucks } & 4,500 & 5,300 & 10,000 \
\hline \text { Cars } & 5,500 & 34,500 & 40,000 \\hline \text { Actual machine hours } & & & \
\hline \text { Trucks } & 16,500 & 3,500 & 20,000 \
\hline \text { Cars } & 3,200 & 6,800 & 10,000 \
\hline
\end{array}$
-Refer to the figure.How much was overhead overapplied or underapplied?

Accepted Answer

Overhead is overapplied or underapplied based on the difference between the actual overhead costs and the applied overhead costs. To find the applied overhead, we use the departmental rates based on the provided bases (machine hours for Moulding and direct labor hours for Finishing).1. Calculate the departmental overhead rates:   - Moulding: $250,000 estimated overhead / (17,000 trucks + 3,000 cars) machine hours = $12.50 per machine hour.   - Finishing: $100,000 estimated overhead / (5,000 trucks + 35,000 cars) direct labor hours = $2.50 per direct labor hour.2. Calculate the applied overhead:   - Moulding: (16,500 trucks + 3,200 cars) actual machine hours * $12.50 = $246,250.   - Finishing: (5,300 trucks + 34,500 cars) actual direct labor hours * $2.50 = $99,500.   - Total applied overhead = $246,250 + $99,500 = $345,750.3. Compare the applied overhead to the actual overhead:   - Actual overhead = $360,000.   - Applied overhead = $345,750.   - Difference (Underapplied) = $360,000 - $345,750 = $14,250.Therefore, the overhead was underapplied by $14,250.

Question 6

Cabrini Company produces two products: toy trucks and toy cars. The company uses departmental overhead rates for the two production departments: Moulding and Finishing. Moulding uses machine hours to assign overhead and Finishing uses direct labour hours; 50,000 trucks and 250,000 cars are produced. Please find the following data:
$\begin{array}{|l|c|c|c|}
\hline & \text { Moulding } & \text { Finishing } & \text { Total } \
\hline \text { Estimated overhead } & \$ 250,000 & \$ 100,000 & \$ 350,000 \
\hline \text { Actual overhead } & \$ 240,000 & \$ 120,000 & \$ 360,000 \
\hline & & & \\hline \text { Expected direct labour hours } & & & \
\hline \text { Trucks } & 5,000 & 5,000 & 10,000 \
\hline \text { Cars } & 5,000 & 35,000 & 40,000 \
\hline \text { Expected machine hours } & & & \\hline \text { Trucks } & 17,000 & 3,000 & 20,000 \
\hline \text { Cars } & 3,000 & 7,000 & 10,000 \
\hline \text { Actual direct labour hours } & & & \
\hline \text { Trucks } & 4,500 & 5,300 & 10,000 \
\hline \text { Cars } & 5,500 & 34,500 & 40,000 \\hline \text { Actual machine hours } & & & \
\hline \text { Trucks } & 16,500 & 3,500 & 20,000 \
\hline \text { Cars } & 3,200 & 6,800 & 10,000 \
\hline
\end{array}$
-Refer to the figure.How much overhead is applied to the trucks?

Accepted Answer

To calculate the overhead applied to the trucks, we first determine the departmental overhead rates. For Moulding, the rate is based on machine hours (\$250,000 estimated overhead / 20,000 expected machine hours = \$12.50 per machine hour). For Finishing, it's based on direct labor hours (\$100,000 estimated overhead / 40,000 expected direct labor hours = \$2.50 per direct labor hour). For trucks, in Moulding, the overhead is 17,000 machine hours * \$12.50 = \$212,500. In Finishing, it's 5,000 direct labor hours * \$2.50 = \$12,500. Adding these together gives \$225,000. However, the correct calculation should consider the actual hours worked and the rates correctly applied, leading to the correct answer based on the provided data and methodology.

Question 7

Erickson Company made the following predictions for the current year:
$$\begin{array} { l r } 
\text { Factory averhead costs } & \text {\$ 300,000 } \
\text { Direct labour hours } & 50,000 \text { hours } \
\text { Machine hours } & 100,00 \text { hours }
\end{array}$$ Job A2 (which was started and completed in May)used 3,000 direct labour hours,2,000 machine hours,and $57,000 of prime costs.
-Refer to the figure.If factory overhead is applied based on direct labour hours,what is the cost of Job A2 for the Erickson Company?

Accepted Answer

The answer of Erickson Company made the following predictions for...

Question 8

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given:
$\begin{array}{|c|c|}
\hline \text { Actual overhead } & \$ 325,000 \
\hline \text { Estimated overhead } & \$ 350,000 \
\hline \text { Estimated activity: } & \
\hline \text { 9 volt battery } & 100,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \text { direct labour hours } \\hline \text { Actual activity: } & \
\hline 9 \text { volt battery } & 125,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \quad \text { direct labour hours } \\hline \text { Units produced: } & \
\hline 9 \text { volt battery } & 500,000 \
\hline \text { AAA battery } & 250,000 \
\hline
\end{array}$
-Refer to the figure.How much was overhead overapplied or underapplied?

Accepted Answer

The overhead application rate is calculated based on estimated figures: $\frac{\$350,000}{500,000 \text{ direct labour hours}} = \$0.70$ per direct labour hour. The actual direct labour hours used are $125,000 + 400,000 = 525,000$. Thus, the applied overhead is $525,000 \times \$0.70 = \$367,500$. The actual overhead is \$325,000, so the overhead was overapplied by $\$367,500 - \$325,000 = \$42,500$.

Question 9

How should material amounts of underapplied or overapplied overhead be disposed of?

Accepted Answer

Underapplied or overapplied overhead should be allocated to Work in process, Finished goods, and Cost of goods sold. This is because overhead costs are incurred in all stages (direct materials, work in process, and finished goods) of the manufacturing process, and thus, the under or over-applied overhead should be allocated to all of these stages. This allocation will ensure that the costs are appropriately recorded and reflected in the cost of goods sold.

Question 10

Cabrini Company produces two products: toy trucks and toy cars. The company uses departmental overhead rates for the two production departments: Moulding and Finishing. Moulding uses machine hours to assign overhead and Finishing uses direct labour hours; 50,000 trucks and 250,000 cars are produced. Please find the following data:
$\begin{array}{|l|c|c|c|}
\hline & \text { Moulding } & \text { Finishing } & \text { Total } \
\hline \text { Estimated overhead } & \$ 250,000 & \$ 100,000 & \$ 350,000 \
\hline \text { Actual overhead } & \$ 240,000 & \$ 120,000 & \$ 360,000 \
\hline & & & \\hline \text { Expected direct labour hours } & & & \
\hline \text { Trucks } & 5,000 & 5,000 & 10,000 \
\hline \text { Cars } & 5,000 & 35,000 & 40,000 \
\hline \text { Expected machine hours } & & & \\hline \text { Trucks } & 17,000 & 3,000 & 20,000 \
\hline \text { Cars } & 3,000 & 7,000 & 10,000 \
\hline \text { Actual direct labour hours } & & & \
\hline \text { Trucks } & 4,500 & 5,300 & 10,000 \
\hline \text { Cars } & 5,500 & 34,500 & 40,000 \\hline \text { Actual machine hours } & & & \
\hline \text { Trucks } & 16,500 & 3,500 & 20,000 \
\hline \text { Cars } & 3,200 & 6,800 & 10,000 \
\hline
\end{array}$
-Refer to the figure.What are the departmental overhead rates for the moulding and finishing department,respectively?

Accepted Answer

The answer of Cabrini Company produces two products: toy trucks...

Question 11

Erickson Company made the following predictions for the current year:
$$\begin{array} { l r } 
\text { Factory averhead costs } & \text {\$ 300,000 } \
\text { Direct labour hours } & 50,000 \text { hours } \
\text { Machine hours } & 100,00 \text { hours }
\end{array}$$ Job A2 (which was started and completed in May)used 3,000 direct labour hours,2,000 machine hours,and $57,000 of prime costs.
-Refer to the figure.If factory overhead is applied based on machine hours,what is the cost of Job A2 for the Erickson Company?

Accepted Answer

Factory overhead rate = $300,000 / 100,000 machine hours = $3 per machine hourCost of Job A2 = Prime costs + Factory overhead= $57,000 + (2,000 machine hours x $3 per machine hour)= $57,000 + $6,000= $63,000

Question 12

The following information is provided for the year: 
$\begin{array}{llr}
  \text { Actual direct labour hours worked } &27,500\
 \text {Budgeted overhead  } &\$525,000\
 \text {Budgeted direct labour hours  } &30,000\
 \text {Actual overhead costs incurred  } &\$481,250
\end{array}$
 If normal costing is used,what is the amount of overhead applied for the year?

Accepted Answer

There is not enough information given to calculate the overhead applied using normal costing, as we need to know the predetermined overhead rate and the actual amount of the allocation base used during the year. Therefore, the correct answer cannot be determined.

Question 13

Carlson Company uses a predetermined rate to apply overhead.At the beginning of the year,Carlson estimated its overhead costs at $240,000,direct labour hours at 40,000,and machine hours at 10,000.Actual overhead costs incurred were $249,280,actual direct labour hours were 41,000,and actual machine hours were 11,000. What is the predetermined overhead rate per machine hour for Carlson?

Accepted Answer

The predetermined overhead rate per machine hour is calculated by dividing the estimated overhead costs by the estimated machine hours. Therefore, $240,000 / 10,000 machine hours = $24.00 per machine hour.

Question 14

The Holland Company uses a predetermined overhead rate of $12 per direct labour hour to apply overhead.During the year,30,000 direct labour hours were worked.Actual overhead costs for the year were $320,000.What is the overhead variance?

Accepted Answer

The predetermined overhead rate is $12 per direct labor hour, and 30,000 hours were worked, so the applied overhead is 30,000 hours * $12/hour = $360,000. The actual overhead costs were $320,000, so the variance is $360,000 (applied) - $320,000 (actual) = $40,000 overapplied.

Question 15

The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given:
$\begin{array}{|c|c|}
\hline \text { Actual overhead } & \$ 325,000 \
\hline \text { Estimated overhead } & \$ 350,000 \
\hline \text { Estimated activity: } & \
\hline \text { 9 volt battery } & 100,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \text { direct labour hours } \\hline \text { Actual activity: } & \
\hline 9 \text { volt battery } & 125,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \quad \text { direct labour hours } \\hline \text { Units produced: } & \
\hline 9 \text { volt battery } & 500,000 \
\hline \text { AAA battery } & 250,000 \
\hline
\end{array}$
-Refer to the figure.If the accounts had the following balances,by how much would cost of goods sold be adjusted? $\begin{array}{|l|l|}
\hline \text { Raw materials inventory } & \$ 200,000 \
\hline \text { Work in process inventory } & \$ 100,000 \
\hline \text { Finished goods inventory } & \$ 200,000 \
\hline \text { Cost of goods sold } & \$ 500,000 \
\hline
\end{array}$

Accepted Answer

The total actual overhead is $325,000, and the estimated overhead was $350,000, indicating that the overhead was over-applied by $25,000 ($350,000 - $325,000). This over-applied overhead reduces the cost of goods sold, hence a credit adjustment is needed. The total direct labor hours estimated were 500,000 (100,000 for 9 volt + 400,000 for AAA), and the actual were 525,000 (125,000 for 9 volt + 400,000 for AAA). The overhead rate per direct labor hour is $350,000 / 500,000 = $0.70 per hour. The over-applied overhead of $25,000 needs to be adjusted proportionally across the accounts based on their share of the total direct labor hours. Since the cost of goods sold is directly related to production, the entire over-applied amount of $25,000 is credited to adjust the cost of goods sold, not the specific $26,562.50 or any other amount.

Question 16

The following information is provided for the year: 
$\begin{array}{llr}
  \text { Actual overhead } &\$450,000\
 \text {Actual machine hours worked  } &25,000\
\text { Budgeted machine hours} &27,500\
 \text {Applied overhead } &\$487,500
\end{array}$
 If normal costing is used,what would be the budgeted overhead used to calculate the predetermined rate?

Accepted Answer

The predetermined overhead rate is calculated using budgeted overhead and budgeted machine hours. The applied overhead is given as $487,500 for 27,500 budgeted machine hours, so the budgeted overhead is $487,500.

Question 17

Account balances are as follows: $\begin{array}{lc}
\text { Manufacturing overhead } & \$ 240,000 \text { underapplied } \
\text { Work in process } & 100,000 \
\text { Finished goods } & 300,000 \
\text { Cost of goods sold } & 800,000
\end{array}$ 
If underapplied or overapplied overhead is material and is allocated to work in process,finished goods,and cost of goods sold (based on ending account balances),what would be the balance of cost of goods sold after adjustment?

Accepted Answer

The total underapplied overhead of $240,000 is allocated based on the ending balances of work in process, finished goods, and cost of goods sold. The proportions are calculated as follows: Work in process ($100,000) / Total ($1,200,000) = 1/12, Finished goods ($300,000) / Total ($1,200,000) = 1/4, and Cost of goods sold ($800,000) / Total ($1,200,000) = 2/3. Therefore, 2/3 of the $240,000 underapplied overhead is allocated to cost of goods sold, which is $160,000 ($240,000 * 2/3). Adding this to the original cost of goods sold ($800,000) gives the adjusted balance of $960,000.

Question 18

Assume the following: Actual overhead costs equalled estimated overhead.Actual direct labour hours exceeded estimated direct labour hours used to calculate the predetermined overhead rate.If overhead is applied using the predetermined overhead rate,what will be the impact on the overhead?

Accepted Answer

Actual overhead costs equalled estimated overhead, so there is no over- or underapplied overhead due to this factor. However, actual direct labour hours exceeded estimated direct labour hours used to calculate the predetermined overhead rate. This means that the actual overhead rate is lower than the predetermined overhead rate. As a result, overhead is overapplied.

Question 19

Cabrini Company produces two products: toy trucks and toy cars. The company uses departmental overhead rates for the two production departments: Moulding and Finishing. Moulding uses machine hours to assign overhead and Finishing uses direct labour hours; 50,000 trucks and 250,000 cars are produced. Please find the following data:
$\begin{array}{|l|c|c|c|}
\hline & \text { Moulding } & \text { Finishing } & \text { Total } \
\hline \text { Estimated overhead } & \$ 250,000 & \$ 100,000 & \$ 350,000 \
\hline \text { Actual overhead } & \$ 240,000 & \$ 120,000 & \$ 360,000 \
\hline & & & \\hline \text { Expected direct labour hours } & & & \
\hline \text { Trucks } & 5,000 & 5,000 & 10,000 \
\hline \text { Cars } & 5,000 & 35,000 & 40,000 \
\hline \text { Expected machine hours } & & & \\hline \text { Trucks } & 17,000 & 3,000 & 20,000 \
\hline \text { Cars } & 3,000 & 7,000 & 10,000 \
\hline \text { Actual direct labour hours } & & & \
\hline \text { Trucks } & 4,500 & 5,300 & 10,000 \
\hline \text { Cars } & 5,500 & 34,500 & 40,000 \\hline \text { Actual machine hours } & & & \
\hline \text { Trucks } & 16,500 & 3,500 & 20,000 \
\hline \text { Cars } & 3,200 & 6,800 & 10,000 \
\hline
\end{array}$
-Refer to the figure.What is the overhead per unit for cars (rounded to two decimal places)?

Accepted Answer

The overhead per unit for cars is calculated by dividing the total overhead allocated to cars by the number of cars produced. The Moulding department uses machine hours, and the Finishing department uses direct labour hours to allocate overhead. Calculate the overhead rate for each department, allocate the overhead to cars, and then divide by the number of cars produced.

Question 20

Walter Company uses a job-order costing system to account for product costs.The following information pertains to the current year: $\begin{array}{lr}
\text { Materials placed into production } & \$ 140,000 \
\text { Indirect labour } & 40,000 \
\text { Direct labour (10,000 hours) } & 160,000 \
\text { Depreciation of factory building } & 60,000 \
\text { Other factory overhead } & 100,000 \
\text { Increase in work-in-process inventory } & 30,000
\end{array}$ Factory overhead rate is $18 per direct labour hour.
What is the amount of underapplied or overapplied overhead for Walter Company in the current year?

Accepted Answer

The applied overhead is $180,000 (10,000 hours x $18). The actual overhead is $200,000 ($40,000 + $60,000 + $100,000). The overhead is underapplied by $20,000 ($200,000 - $180,000).

Quiz 6: Activity-Based Costing

How should material amounts of underapplied or overapplied overhead be disposed of?

The Holland Company uses a predetermined overhead rate of $12 per direct labour hour to apply overhead.During the year,30,000 direct labour hours were worked.Actual overhead costs for the year were $320,000.What is the overhead variance?

Assume the following: Actual overhead costs equalled estimated overhead.Actual direct labour hours exceeded estimated direct labour hours used to calculate the predetermined overhead rate.If overhead is applied using the predetermined overhead rate,what will be the impact on the overhead?