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Problem 3-28 (60 minutes)
1. and 2.
Cash
Accounts Receivable
Bal.
63,000
(m)
785,000
Bal.
102,000
(l)
850,000
(l)
850,000
(k)
925,000
Bal.
128,000
Bal.
177,000
Raw Materials
Prepaid Insurance
Bal.
30,000
(b)
200,000
Bal.
9,000
(g)
7,000
(a)
185,000
Bal.
2,000
Bal.
15,000
Videos in Process
Finished Goods
Bal.
45,000
(j)
550,000
Bal.
81,000
(k)
600,000
(b)
170,000
(j)
550,000
(f)
82,000
Bal.
31,000
(i)
290,000
Bal.
37,000
Case 3-29 (45 minutes)
1. Shaving 5% off the estimated direct labor-hours in the predetermined
overhead rate will result in an artificially high overhead rate. The artifi-
2. This question may generate lively debate. Where should Terri Ronsin’s
loyalties lie? Is she working for the general manager of the division or
for the corporate controller? Is there anything wrong with the “Christ-
mas bonus”? How far should Terri go in bucking her boss on a new job?
cuss this situation with her immediate supervisor in the controller’s of-
Case 3-30 (60 minutes)
1.
a.
Estimated total manufacturing overhead cost
Predetermined =
overhead rate Estimated total amount of the allocation base
$840,000 140% of direct
= = labor cost
$600,000 direct labor cost
b. $9,500 × 140% = $13,300
2.
a.
Fabricating
Department
Machining
Department
Assembly
Department
Estimated manufacturing
overhead cost (a) .........
$350,000
$400,000
$ 90,000
Estimated direct labor
cost (b) ........................
$200,000
$100,000
$300,000
Predetermined overhead
rate (a) ÷ (b) ...............
175%
400%
30%
b.
Fabricating Department:
$2,800 × 175% .............................
$4,900
Machining Department:
$500 × 400% ................................
2,000
Assembly Department:
$6,200 × 30% ...............................
1,860
Total applied overhead .....................
$8,760
3. The bulk of the labor cost on the Koopers job is in the Assembly De-
partment, which incurs very little overhead cost. The department has an
overhead rate of only 30% of direct labor cost as compared to much
Case 3-30 (continued)
b.
Department
Fabricating
Machining
Assembly
Total Plant
Actual overhead
cost ......................
$360,000
$420,000
$84,000
$864,000
Applied overhead
cost: .....................
$210,000 × 175% .
367,500
$108,000 × 400% .
432,000
$262,000 × 30% ...
78,600
878,100
Underapplied (over-
applied) overhead
cost ......................
$ (7,500)
$ (12,000)
$ 5,400
$ (14,100)
Appendix 3A
Activity-Based Absorption Costing
Exercise 3A-1 (20 minutes)
1. Activity rates are computed as follows:
Activity Cost Pool
(a)
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity
Rate
Machine setups ......
$72,000
400
setups
$180
per setup
Special processing ..
$200,000
5,000
MHs
$40
per MH
General factory ......
$816,000
24,000
DLHs
$34
per DLH
Exercise 3A-1 (continued)
2. Overhead is assigned to the two products as follows:
Hubs:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups .....................
$180
per setup
100
setups
$ 18,000
Special processing .................
$40
per MH
5,000
MHs
200,000
General factory .....................
$34
per DLH
8,000
DLHs
272,000
Total .....................................
$490,000
Sprockets:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups .....................
$180
per setup
300
setups
$ 54,000
Special processing .................
$40
per MH
0
MHs
0
General factory .....................
$34
per DLH
16,000
DLHs
544,000
Total .....................................
$598,000
