Question

Oregon Conference Tables processes timber into large conference table tops. Production occurs in two phases - sawing and sanding. The sawing phase is almost entirely automated and costs are largely driven by processing time on a computerized sawing machine. Sanding is a labor intensive process, and the amount of time on a particular job varies considerably based on the intrinsic stone quality and the desired sheen for a particular job. The Sawing Department applies factory overhead based on sawing machine hours. The Sanding Department applies factory overhead based on direct labor hours. The following table reveals estimates for the upcoming year. These estimates were used to determine the applicable factory overhead application rates: $ Direct labor Direct materials Factory overhead Direct labor hours Sawing machine hours Sawing 500,000 300,000 1,100,000 40,000 110,000 $ $ $ Sanding 3,200,000 24,000 720,000 200,000 n/a During the year, the company received and processed a table top order for a Fortune 500 company. The following table reveals information extracted from the materials requisition forms and daily time sheets relating to this particular job:

Answer 1

a)

	Sawing	Sanding
Estimated overhead	1100000	720000
Estimated activity	110000	200000
Factory overhead rate	$ 10 per sawing machine hours	$ 3.6 per direct labor hours

b)

	Sawing	Sanding	Total
Direct labor	900	5310	6210
Direct materials	555	60	615
Factory overhead (189*10)	1890	0	1890
Factory overhead (210*3.6)	0	756	756
Total cost	3345	6126	9471

Cost per square foot = Total cost /total square foot

                    = 9471 /(5*30)

                   = 9471 / 150

                   = $ 63.14 per square foot

Profit = price -cost

= 65 -63.14

$ 1.86 per square foot

Yes ,company makes a profit on this job.

c)

	Sawing	Sanding	Total
Actual overhead	1015000	658000	1673000
sawing machine hours/Direct labor hours [1]	96233	211750
Applied overhead rate [2]	10	3.6
Applied overhead[1*2]	962330	762300	1724630
Under-applied overhead/(over-applied overhead )	52670	(104300)	(51630)