Question

 Predetermined Overhead Rates, Overhead Variances, Unit Costs

 McCawl Company produces two products and uses a predetermined overhead rate to apply overhead. McCawl currently applies overhead using a plantwide rate based on direct labor hours. Consideration is being given to the use of departmental overhead rates where overhead would be applied on the basis of direct labor hours in department 1 and on the basis of machine hours in department 2. At the beginning of the year, the following estimates are provided:

 Required:

 1. Compute the plantwide predetermined overhead rate, and calculate the overhead assigned to each product.

 2. Calculate the predetermined departmental overhead rates, and calculate the over-head assigned to each product.

 3. Using departmental rates, compute the applied overhead for the year. What is the under-or overapplied overhead for the firm?

 4. Prepare the journal entry that disposes of the overhead variance calculated in Requirement 3, assuming it is not material in amount. If the variance is material, what additional information would you need to make the appropriate journal entry?

4-13

 Functional-Based versus Activity-Based Costing

 Baldwin Company produces treadmills. One of its plants produces two versions: a standard model and a deluxe model. The deluxe model has a wider and sturdier base and a variety of electronic gadgets to help the exerciser monitor heartbeat, calories burned, distance traveled, and so on. Ar the beginning of the year, the following data were pre-pared for this plant:

 At the end of the year, every item was realized as budgeted.

 Required:

 1. Calculate the cost per unit for each product using direct labor hours to assign all overhead costs.

 2. Calculate activity rates and determine the overhead cost per unit. Compare these costs with those calculated using the functional-based method. Which cost is more accurate? Explain.

Answer 1

4-12)

a)  Plantwide predetermined overhead rate = Overhead Cost/Direct Labor Hours
Plantwide predetermined overhead rate = ($240,000 + $720,000)/(400,000 + 80,000)	$                      2.00	Per direct labor hours
	Product A	Product B
Direct Labor Hours = 300,000 + 60,000	360000	116000
Direct Labor Hours = 92,000 +  24,000
Plantwide predetermined overhead rate	$                      2.00	$                2.00
Overhead Assigned	$           720,000.00	$     232,000.00
b)
Department 1 = $240,000/400,000 DLH =	$                      0.60	per direct labor hour
Department 2 = $720,000/120,000 MH  =	$                      6.00	per machine hour
Product A : ($0.60 × 300,000) + ($6.00 × 20,000) =	$           300,000.00
Product B : ($0.60 × 92,000) + ($6.00 × 100,000) =	$           655,200.00
c)
Total applied overhead (300,000 + 655,200)	$           955,200.00
Total actual overhead ($250,000 + $770,000)	$        1,020,000.00
Under applied (difference)	$             64,800.00
d)
Account Titles	Debit	Credit
Cost of Goods Sold	$             64,800.00
Overhead Control		$       64,800.00
If the variance is material, we would need to know the balances in the work-in-process account, the finished goods account, and the cost of goods sold account.

Answer 2

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