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45 Minutes, Strong PROBLEM 17.8
A
HEALTHY HOUND, INC.
a. Budgeted manufacturing overhead 24,600$
Budgeted direct labor hours (DLH) ÷ 2,500
Manufacturing overhead application rate 9.84$ per DLH
Manufacturing overhead allocated using DLH Basic Chunks Custom Cuts
b. Percent of cost driver assigned to each product line Basic Chunks Custom Cuts
Manufacturing overhead allocated using ABC Basic Chunks Custom Cuts
Miscellaneous cost pool (using DLH as a cost driver):
PROBLEM 17.8
A
HEALTHY HOUND, INC. (concluded)
c. Total manufacturing costs allocated to each product line Basic Chunks Custom Cuts
d.
e.
The Custom Cuts product line is very labor intensive in comparison to the Basic Chunks
product line. Thus, the company’s current practice of using direct labor hours to allocate
The benefits the company would achieve by implementing an activity-based costing system
include: (1) a better identification of its operating inefficiencies, (2) a better understanding
SOLUTIONS TO PROBLEMS SET B
20 Minutes, Easy PROBLEM 17.1B
WINONA ENTERPRISES
a.
Manufacturing overhead charged to jobs in process,
Direct materials charged to jobs in process, April 30:
b.
to Finished Goods Inventory
.
To record cash sale of 70% of goods completed
in April.
To record cost of goods sold ($66,000 × 70%).
General Journal
15 Minutes, Easy PROBLEM 17.2B
FARGO DEVELOPMENT CO.
General Journal
a. Materials Inventor
y
100,000
Accounts Payabl
e
100,000
To record purchases of direct materials during July.
To record materials used on jobs during Jul
y
per materials requisitions.
in July per employees’ time cards.
To record direct labor payrolls paid in July.
To record actual overhead costs in July.
To record overhead applied to production during Jul
y
($60 per labor hour × 1,800 hours = $108,000).
To record cost of completed jobs in July.
To summarize credit sales in July.
To record cost of units sold during July.
30 Minutes, Medium PROBLEM 17.3B
LINCOLN ESTATES
a. Cutting Department overhead application rate based on machine-hours:
Assembly Department overhead application rate based on direct labor hours:
b. Job no. 80
Total
Direct materials 250,000$
To record revenue from sale to Cliff Newton.
To record cost of goods sold (job no. 80) to Cliff Newton.
d. Assembl
y
Departmen
t
Assembly
150,000$
Department Department
100,000$ 10,000
Cutting
Cutting
Department
30 Minutes, Medium PROBLEM 17.4B
MONARK ELECTRONICS
a. Department A overhead application rate:
b. Job no. 652
Total
Direct materials 20,750$
Direct labor 2,250
c. General Journal
Sold 1,000 units to Computex Computers.
Sold 1,000 units from job no. 652.
d.
Dept. B
Actual overhead for the yea
r
615,000$
Overhead applied:
Dept. A
19,000$ 1,750$
1,500
750
Dept. B
800,000$
Dept. A
35 Minutes, Medium PROBLEM 17.5B
BIG BOOMERS
a.
(
1
)
180,000$ 15,000
12$
b.
(
1
)
(
2
)
300$
276 72
Total cost of Job 1 648$
100$ 60 72
Total cost of Job 2 232$
Overhead applied ($72 per job)
Overhead applied ($72 per job)
Job 2:
Direct materials used
Direct labor
Direct labor costs
Overhead application rate per job ($180,000 ÷ 2,500 jobs)
Overhead applied on a per-job basis:
Job 1:
Overhead applied using direct labor hours:
Job 1:
Direct materials used
Estimated number of repair jobs
Overhead application rate based on direct labor hours:
Estimated total overhead
Estimated direct labor hours
($180,000 ÷ 15,000 hours)
Overhead application rate per direct labor hour
PROBLEM 17.5B
BIG BOOMERS (concluded)
c.
Allocating overhead based upon the number of jobs assumes that each job should be
charged with an equal amount ($72) of overhead. This allocation method ignores the fact
Comments on the alternative overhead applications:
30 Minutes, Medium PROBLEM 17.6B
LOGAN PHARMACEUTICA
L
a.
% of total
312,500
1,250,000
$
Costs assigned to Dorkamine ($1,250,000 × 25%)
Total preproduction pool assigned
Assigning quality control department costs to activity pools:
Step 1:
Establish the percent of the department’s costs
to be assigned to each activity cost pool using the
number of employees as an activity base.
PROBLEM 17.6B
LOGAN PHARMACEUTICAL (concluded
)
c.
% of total
d. The company should consider reassigning its inspectors so that more time and effort is spent
inspecting shipments of Dorkamine materials. If relatively few problems are associated with
the material used to make Caltrate, time currently spent inspecting Caltrate materials
would be better spent inspecting the Dorkamine materials. Moreover, if inferior raw
materials are identified before being placed into production, fewer postproduction
inspectors may be needed. In short, the company should (1) conduct more frequent and
careful inspections of Dorkamine materials, and (2) reassign inspectors from
postproduction responsibilities to preproduction responsibilities.
Allocation of postproduction cost pool:
Step 1: Establish the percent of the pool to be allocated
to each product line using the number of batches
produced as an activity base.
