Question

Concord Manufacturing Company, a small manufacturer of appliance parts, has just completed its first year of operations. The company's controller, Kenneth Clark has been reviewing the results for the year and is concerned about the application of factory overhead. Trainor is using the following information to assess operations. • Concord uses several machines with a combined cost of $2,250,000 and no residual value. Each machine has an output of 5 units of product per hour and a useful life of 25.000 machine hours. • Selected actual data on Concord's operations for the year just ended are as follows: Products manufactured Machine use Direct labor Labor rate Total factory overhead Cost of Goods Sold Finished Goods Inventory (year-end) Work in Process Inventory (year-end) 692,000 units 146,000 hours 26.000 hours $ 15 per hour $ 1.180.000 $ 1.743,260 $ 444.240 $ 0 • Total factory overhead is applied based on direct labor cost using a predetermined plantwide rate. • Budgeted activity for the year included 10 employees each working 1.800 productive hours per year to produce 506,250 units of product. Because the machines are highly automated, each employee can operate two to four machines simultaneously. Normal activity is for each employee to operate three machines. Machine operators are paid $15 per hour. Overhead was budgeted at $810,000.

Answer 1

Pre-determined overhead rate $8.00 /machine hour Working notes: Pre-determined overhead rate Manufacturing overheads Machine hours $810,000 101,250 $8.00 Total annual output Machine hour per unit Total machine hours 506,250 a 5 b 101,250 a/b