Question

1. Whitelands, Inc. uses a highly automated process to manufacture its finished products. The firm expects to make 20 items during the next accounting period. Each finished good requires three machine hours to produce. Whitelands expects to incur $180 of total factory overhead costs in the next accounting period.

Required: Compute the applied factory overhead rate based on both finished goods (the output) and machine hours (the input).

2.

Required: Use the result in Exercise 7-3 above to compute Whitelands’ standard cost if the product requires 2 lbs. of raw materials at $4 per lb. and 1 hour of direct labor at $10 per hour.

Standard Cost	Price	Quantity	Cost
Direct material
Direct labor
Factory overhead
Standard product cost

3. Assume that Whitelands expects to sell 16 of the 20 goods it expected to manufacture in Exercise 7-3 above. The expected sales price per unit is $30.

Required: Based on the standard cost computed in Exercise 7-4 above, forecast sales revenue, cost of goods sold, and gross profit on the income statement and ending inventory on the balance sheet.

Forecast Income Statement

Sales revenue (16*20)
Cost of goods sold
Gross profit

Forecast Balance Sheet

Finished goods inventory

Answer 1

1. Applied factory overhead rate:

Based on finished goods (the output) = $180/20 = $9 per unit

Based on machine hours (the input) = $180/(20 x 3) = $180/60 = $3 per machine hour

2.

Standard Cost	Price	Quantity	Cost
Direct material	$             4	2	$             8
Direct labor	$          10	1	$          10
Factory overhead	$             9	1	$             9
Standard product cost			$          27

3. Forecast Income Statement

Sales revenue (16 x $30)	$        480
Cost of goods sold (16 x $27)	$        432
Gross profit	$          48

Forecast Balance Sheet

Finished goods inventory [(20 - 16) x $27]

$        108