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Solutions Manual, Chapter 2 21
Exercise 2-4 (10 minutes)
1 and 2.
The total direct labor-hours required for Job N-60:
Assembly
T
estin
g
&
Packaging
T
The total manufacturing cost and unit product cost for Job N-60 is com-
puted as follows:
Direct materials ($340 + $25) …………………………. $365
Direct labor ($180 + $40) ………………………………. 220
A
T
&
T
g
T
otal manufacturin
g
cost (a) …………………………… $753
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22 Managerial Accounting, 16th edition
Exercise 2-5 (10 minutes)
1 and 2.
The total direct labor-hours required in Finishing for Job 700:
Finishin
g
The total manufacturing cost and unit product cost for Job 700 is computed
as follows:
Direct materials ($410 + $60) …………………………. $470
Direct labor ($128 + $48) ………………………………. 176
Finishin
g
Department ($18 per DLH × 8 DLHs) ……. $144
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Solutions Manual, Chapter 2 23
Exercise 2-6 (10 minutes)
1. The estimated total overhead cost is computed as follows:
Y = $680,000 + ($0.50 per DLH)(80,000 DLHs)
Estimated fixed overhead cost…………………………. $680,000
Estimated variable overhead cost: $0.50 per DLH ×
The predetermined overhead rate is computed as follows:
Estimated total overhead (a)…………………. $720,000
2. Total manufacturing cost assigned to Xavier:
Direct materials ………………………………………………. $38,000
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24 Managerial Accounting, 16th edition
Exercise 2-7 (20 minutes)
1. Step 1: The total direct labor-hours required for Job Omega:
Direct labor cost (a) ……………………………… $345,000
Step 2: Derive the plantwide predetermined overhead rate:
Manufacturin
g
overhead applied to Job
Omega (a) ………………………………………..
$184,000
2. The job cost sheet for Job Alpha is derived as follows: (note that direct
materials is the plug figure)
Direct materials (plu
g
fi
g
ure)………………………….. $ 280,000
Direct labor (54,500 DLHs × $15 per DLH) ……….. 817,500
g
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Solutions Manual, Chapter 2 25
Exercise 2-8 (10 minutes)
Direct material …………………………. $10,000
Direct labor ……………………………… 12,000
Manufacturin
g
overhead applied:
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26 Managerial Accounting, 16th edition
Exercise 2-9 (30 minutes)
1. The estimated total overhead cost is computed as follows:
Y = $1,980,000 + ($2.00 per MH)(165,000 MHs)
Estimated fixed overhead ……………………………….. $1,980,000
The plantwide predetermined overhead rate is computed as follows:
Estimated total overhead (a)…………………. $2,310,000
2. Total manufacturing cost assigned to Job P90:
Direct materials ………………………………………………. $1,150
3a. Given that the company is operating at 50% of its manufacturing ca-
pacity, an argument can made that the company should pursue any
Sales …………………………………………………….. $2,500
Direct materials ……………………………………….. $1,150
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Solutions Manual, Chapter 2 27
Exercise 2-9 (continued)
3b. The CFO’s argument is based on the assertion that Job P90 does not
generate enough revenue to cover the cost of the manufacturing re-
sources that it consumes. However, given that the company is operat-
ing at 50% of its manufacturing capacity, the overhead costs applied
If we estimate a capacity-based overhead rate for the company and
apply overhead costs to Job P90 using this rate, it reveals that the rev-
The estimated total overhead cost (at capacity) is computed as follows
(keep in mind that 165,000 MHs ÷ 50% = 330,000 MHs):
Y = $1,980,000 + ($2.00 per MH)(330,000 MHs)
Estimated fixed overhead ……………………………….. $1,980,000
The predetermined capacity-based overhead rate is computed as follows:
Estimated total overhead (a)…………………. $2,640,000
The total manufacturing cost assigned to Job P90 (using a capacity-based
overhead rate):
Direct materials ………………………………………………. $1,150
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28 Managerial Accounting, 16th edition
Exercise 2-10 (10 minutes)
1. Yes, overhead should be applied to Job W at year-end.
Because $6,000 of overhead was applied to Job V on the basis of
$8,000 of direct labor cost, the company’s predetermined overhead rate
must be 75% of direct labor cost.
2. The direct materials ($2,500), direct labor ($4,000), and applied over-
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Solutions Manual, Chapter 2 29
Exercise 2-11 (30 minutes)
Note to the instructor: This exercise can be used as a launching pad for
a discussion of Appendix 2B.
1. The estimated total fixed manufacturing overhead can be computed us-
ing the data from any of quarters 1-3. For illustrative purposes, we’ll use
the first quarter as follows:
2. The fixed and variable cost estimates from requirement 1 can be used
to estimate the total manufacturing overhead cost for the fourth quarter
as follows:
Y = $140,000 + ($2.00 per unit)(60,000 units)
Direct materials ……………………………………….…… $180,000
Direct labor …………………………………………..…… 96,000
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30 Managerial Accounting, 16th edition
Exercise 2-11 (continued)
3. The fixed portion of the manufacturing overhead cost is causing the unit
4. The unit product cost can be stabilized by using a predetermined over-
head rate that is based on expected activity for the entire year. The cost
formula created in requirement 1 can be adapted to compute the annual
Y = $560,000 + ($2.00 per unit × 200,000 units)
Estimated fixed manufacturin
g
overhead ……………… $560,000
The annual predetermined overhead rate is computed as follows:
Using a predetermined overhead rate of $4.80 per unit, the unit product
costs would stabilize as shown below:
Quarter
First Second Third Fourth
Direct materials ……………. $240,000 $120,000 $ 60,000 $180,000
Direct labor ………….……… 128,000 64,000 32,000 96,000
Manufacturin
g
overhead: