Chapter 3 51
accessible website, in whole or in part.
32. a. Budgeted fixed overhead = $0.40 100,000 = $40,000
b. Actual (and budgeted) fixed overhead
$40,000
Applied fixed overhead (45,000 $0.40)
18,000
Underapplied fixed overhead (absorption)
$22,000
There is no underapplied or overapplied fixed overhead under variable costing
because fixed overhead is not applied to units of product.
c.
Direct material
$3.60
Direct labor
1.00
Variable overhead
0.60
Cost per unit (variable)
$5.20
Fixed overhead
0.40
Cost per unit (absorption)
$5.60
d. Absorption cost of goods sold (48,750 $5.60)
$273,000
Plus underapplied overhead (55,000 $0.40)
22,000
Adjusted cost of goods sold
$295,000
Selling and administrative costs:
Variable (48,750 $0.40)
$ 19,500
Fixed
150,000
169,500
Total expense (absorption)
$464,500
Variable cost of goods sold (48,750 $5.20)
$253,500
Variable selling expenses (48,750 $0.40)
19,500
Fixed overhead
40,000
Fixed selling and administrative expenses
150,000
Total expense (variable)
$463,000
33. Each student will have a different answer, but the following points should be ad-
dressed. The debate surrounding the use of variable costing versus absorption cost-
any costs that are incurred to create that asset, including fixed overhead, should be
considered for capitalization. This is the argument for use of absorption costing.
considered an inventoriable cost.
52 Chapter 3
34. a.
x
y
xy
x2
50
$ 175
$ 8,750
2,500
44
162
7,128
1,936
40
154
6,160
1,600
35
142
4,970
1,225
53
185
9,805
2,809
58
200
11,600
3,364
60
202
12,120
3,600
340
$1,220
$60,533
17,034
b. y = $55.29 + $2.45(165) = $459.54
35. x
y
xy
x2
200
$ 300
$ 60,000
40,000
325
440
143,000
105,625
400
480
192,000
160,000
410
490
200,900
168,100
525
620
325,500
275,625
680
790
537,200
462,400
820
840
688,800
672,400
900
900
810,000
810,000
4,260
$4,860
$2,957,400
2,694,150
Chapter 3 53
PROBLEMS
36. a. OH rate = Allocated overhead ÷ Actual hours
b. OH rate = $100,000 ÷ (800 + 2,400 + 12,800) = $6.25 per MH
c. GW1: 800 $6.25 = $5,000
GW4: 2,400 $6.25 = $15,000
GW7: 12,800 $6.25 = $80,000
time.
could be devised that would use two overhead rates: one using direct labor to al-
locate the labor-driven overhead costs and the other uses machine hours to allo-
cate the machine-driven portion of overhead.
37. a.
Fixed Costs
Variable Costs
Indirect material
$2.00
Indirect labor
$144,000
2.50
Utilities
6,000
0.04
Repairs & maintenance
20,000
0.34
Material handling
16,000
0.12
Depreciation
210,000
Rent on plant building
50,000
Insurance on plant building
12,000
Totals
$458,000
$5.00
y = $458,000 + $5X
b. Capacities computed:
Theoretical = 50,000 units
Overhead application rates (per unit):
Theoretical: ($458,000 ÷ 50,000) + $5 = $14.16
54 Chapter 3
c. Actual cost = $458,000 + ($5 35,000) = $633,000
Applied overhead:
Theoretical rate: $14.16 35,000 = $495,600
Under/Overapplied amounts:
Applied
Actual
(Under-) Overapplied Amount
Theoretical:
$495,600
$633,000
$(137,400)
Practical:
575,750
633,000
(57,250)
Normal:
675,850
633,000
42,850
Expected:
709,450
633,000
76,450
38. a.
Expected
Normal
Practical
Theoretical
72,000
76,000
80,000
100,000
Variable costs:
Indirect material
$180,000
$190,000
$200,000
$250,000
Indirect labor
216,000
228,000
240,000
300,000
Factory utilities
1,440
1,520
1,600
2,000
Machine maintenance
36,000
38,000
40,000
50,000
Material handling
8,640
9,120
9,600
12,000
Machine depreciation
2,160
2,280
2,400
3,000
Total variable costs
$444,240
$468,920
$493,600
$617,000
Fixed costs:
Factory utilities
$ 3,000
$ 3,000
$ 3,000
$ 3,000
Machine maintenance
10,000
10,000
10,000
10,000
Material handling
8,000
8,000
8,000
8,000
Building rent
12,000
12,000
12,000
12,000
Supervisors’ salaries
72,000
72,000
72,000
72,000
Factory insurance
6,000
6,000
6,000
6,000
Total fixed costs
$111,000
$111,000
$111,000
$111,000
b.
Variable OH rate per unit
$6.17
$6.17
$6.17
$6.17
Fixed OH rate per unit
$1.54
$1.46
$1.39
$1.11
c. (1)
Variable Manufacturing Overhead
175,000
Raw Material (Supplies) Inventory
175,000
To record indirect material at $2.50 per unit
produced
Variable Manufacturing Overhead
210,000
Wages Payable (or Cash)
210,000
To record indirect labor at $3.00 per unit produced
Variable Manufacturing Overhead
1,400
Fixed Manufacturing Overhead
3,000
Utilities Payable (or Cash)
4,400
To record factory utilities
Chapter 3 55
Variable Manufacturing Overhead
35,000
Fixed Manufacturing Overhead
10,000
Cash (or Supplies)
45,000
To record factory maintenance
Variable Manufacturing Overhead
8,400
Fixed Manufacturing Overhead
8,000
Cash
16,400
To record material handling charges
Variable Manufacturing Overhead
2,100
Accumulated Depreciation
2,100
To record depreciation at $0.03 per unit produced
Fixed Manufacturing Overhead
12,000
Cash
12,000
To record building rent
Fixed Manufacturing Overhead
72,000
Salaries Payable (or Cash)
72,000
To record supervisors’ salaries
Fixed Manufacturing Overhead
6,000
Cash (or Prepaid Ins. or Ins. Payable)
6,000
To record factory insurance
Work in Process Inventory
539,700
Variable Manufacturing Overhead
431,900
Fixed Manufacturing Overhead
107,800
To apply variable and fixed manufacturing over-
head to WIP
(2)
Actual fixed overhead
$111,000
Applied fixed overhead (70,000 $1.54)
107,800
Underapplied fixed overhead
$ 3,200
management the costs of unused capacity.
39. a. Total overhead = $635,340 + $324,000 = $959,340
b. Fabrication: $635,340 ÷ 72,000 MHs = $8.82 per MH 10
$ 88.20
Finishing: $324,000 ÷ 48,000 DLHs = $6.75 per DLH 2
13.50
Total OH applied per unit using departmental rates
$101.70
c. Because each department is so different in the type of work being performed
(machine intensive vs. labor intensive), plantwide rates will not accurately attach
overhead costs.
56 Chapter 3
accessible website, in whole or in part.
40. a. (1) Total DLHs = 27,000 + 3,000 = 30,000
(2) Total MHs = 2,100 + 65,800 = 67,900
b. Cutting: $385,500 ÷ 27,000 DLHs = $14.28 per DLH
Assembly: $607,500 ÷ 65,800 MHs = $9.23 per MH
c.
RW22SKI
SD45ROW
Direct material
$ 34.85
$ 19.57
Direct labor—Cutting (6 $20.00; 4.8 $20.00)
120.00
96.00
Direct labor—Assembly (0.03 $8.00; 0.05 $8.00)
0.24
0.40
Total cost other than overhead
$155.09
$115.97
(1) Overhead (plantwide rate using DLHs)
(6.03 $33.10; 4.85 $33.10)
199.59
160.54
Total cost
$354.68
$276.51
(2) Total cost other than overhead
$155.09
$115.97
Overhead (plantwide rate using MHs)
(5.96 $14.62; 9.45 $14.62)
87.14
138.16
Total cost
$242.23
$254.13
(3) Total cost other than overhead
$155.09
$115.97
Cutting Department overhead
(6 $14.28; 4.8 $14.28)
85.68
68.54
Assembly Department overhead
(5.9 $9.23; 9.3 $9.23)
54.46
85.84
Total cost
$295.23
$270.35
cost determined from departmental rates (which is the most accurate of the three
costs) would allow management to meet the competition’s price but would pro-
41. a. Variable indirect labor
$100,000
Variable indirect material
20,000
Variable utilities
80,000
Variable portion of other mixed costs
120,000
Total variable OH costs
$320,000
Total variable OH costs ÷ Number of MHs = Variable OH rate per MH
$320,000 ÷ 50,000 MHs = $6.40 per MH
Chapter 3 57
accessible website, in whole or in part.
Fixed machinery depreciation
$ 62,000
Fixed machinery lease payments
13,000
Fixed machinery insurance
16,000
Fixed salaries
75,000
Fixed utilities
12,000
Total fixed overhead OH costs
$178,000
Total fixed OH costs ÷ Number of MHs = Fixed OH rate per MH
b.
Variable Manufacturing Overhead
273,600
Various accounts
273,600
To record actual VOH costs
Fixed Manufacturing Overhead
185,680
Various accounts
185,680
To record actual FOH costs
Work in Process Inventory (53,000 MHs × $6.40)
339,200
Variable Manufacturing Overhead
339,200
To apply VOH to production
Work in Process Inventory (53,000 MHs $3.56)
188,680
Fixed Manufacturing Overhead
188,680
To apply FOH to production
c.
Actual VOH
$273,600
Actual FOH
$185,680
Applied VOH
339,200
Applied FOH
188,680
Overapplied VOH
$ 65,600
Overapplied FOH
$ 3,000
d.
Fixed Manufacturing Overhead
3,000
Cost of Goods Sold
3,000
To close FOH at year-end
e.
Balance
Proportion
%
Overapp. OH
Adj.
WIP
$ 234,000
$234,000 ÷ $1,560,000
15
$65,600
$ 9,840
FG
390,000
390,000 ÷ $1,560,000
25
$65,600
16,400
CGS
936,000
936,000 ÷ $1,560,000
60
$65,600
39,360
Total
$1,560,000
100
$65,600
Variable Manufacturing Overhead
65,600
Work in Process Inventory
9,840
Finished Goods Inventory
16,400
Cost of Goods Sold
39,360
58 Chapter 3
accessible website, in whole or in part.
42. a. Indirect material: variable; at either level, $6.40 per animal day
Indirect labor: mixed; $8,000 + $12.00 per animal day
at
6,000 days
$ 80,000
at
(4,000) days
(56,000)
2,000
$ 24,000
$24,000 ÷ 2,000 = $12 per animal day
Total cost
$80,000
Variable ($12 6,000 animal days)
72,000
Fixed
$ 8,000
Maintenance: mixed; $4,000 + $1.60 per animal day
at
6,000 days
$ 13,600
at
(4,000) days
(10,400)
2,000
$ 3,200
$3,200 ÷ 2,000 = $1.60 per animal day
Total cost
$13,600
Variable ($1.60 6,000 animal days)
(9,600)
Fixed
$ 4,000
All other: mixed; $2,400 + $3.20 per animal day
at
6,000 days
$ 21,600
at
(4,000) days
(15,200)
2,000
$ 6,400
$6,400 ÷ 2,000 = $3.20 per animal day
Total cost
$ 21,600
Variable ($3.20 6,000 animal days)
(19,200)
Fixed
$ 2,400
Total fixed cost = $8,000 + $4,000 + $2,400 = $14,400
b. $14,400 ÷ ($26.80 $25.20) = 9,000 animal days
c. $26.80 9,000 = $241,200
d.
VOH rate remains constant at
$25.20
FOH rate ($14,400 ÷ 12,000)
1.20
Total OH rate at 12,000 animal days
$26.40*
change in total.