MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
9:
Exercises
and Problems:
9-1: A company uses a Normal Costing System, and allocated overhead using direct labor hours. At the beginning of the year, the company estimated that there would be $960,000 in overhead and 40,000 direct labor hours worked. At the end of the year, the company had worked 39,000 hours and incurred $949,000 in overhead. What is the underapplied or overapplied overhead for the year?
(A) There is not enough information to determine this.
(B) $13,000 underapplied
(C) $11,000 overapplied
(D) $11,000 underapplied
9-2: DRG Company makes three products: cypress, silius,
and sibelius. DRG expects to
incur $900,000 in overhead, and expects to use 300 machine hours to make 500
units of cypress, 200 machine hours to make 100 units of silius,
and 100 machine hours to make 50 units of sibelius.
DRG uses a Normal Costing System, and uses machines hours as the allocation
base.
Required:
A) If DRG
uses 50 machine hours to make 20 units of sibelius,
and actually incurs overhead of $1,111,000, how much overhead will be allocated
to each unit of sibelius?
B) If DRG
uses 200 machine hours to make 400 units of cypress, 400 machine hours to make
150 units of silius, and 50 machine hours to make 20
units of sibelius, what is the amount of overapplied
or underapplied overhead?
9-3: The not-for-profit health clinic Shots-Я-Us provides various types of vaccinations and other shots, especially flu shots, to the public for free or for a nominal fee. The clinic is funded by several local governmental agencies as well as by a number of charitable organizations. Since different donors wish to fund different types of shots, the clinic determines the full cost of each type of shot, by adding overhead to the direct costs, and then provides this information to current and prospective donors.
Following are actual and budgeted costs for Shots-Я-Us for 2003:
|
|
Actual |
Budgeted |
|
Number of patient visits Number of shots administered Fixed overhead: salaries, rent for the facility, insurance, depreciation. Variable overhead: nursing staff hoursly wages, utilities, disposable supplies. Cost of hypodermics (a direct cost) Cost of medications (a direct cost) |
5,000 6,000 $94,000 $66,000 $1,000 $30,000 |
4,000 4,500 $110,000 $40,500 $750 $20,000 |
Required:
A) Under
normal costing, the variable cost per shot is
(A) $9 per
shot
(B) $13.61
per shot
(C) $14.17 per shot
(D) $38.06
per shot
B) Which
of the following might help explain the increase in total variable overhead,
from budget to actual?
(I) The increase in the number of shots given, from budget to
actual.
(II) A
misclassification of some fixed costs as variable (i.e., the costs are actually
fixed, but are included under variable overhead, in both the budget and the
actual columns).
(III) An
increase in the average hourly wages for the nursing staff, from budget to
actual.
(A) (I) only
(B) (III) only
(C) (I) and (III), but not (II)
(D) (I), (II) and (III)
9-4: The Santa Cruz Candy Company expects to incur overhead of $24,000.
Also, the company expects to incur 300 direct labor hours (which is paid an
average of $10 per hour) and 200 machine hours, in order to produce 2,000
pounds of candy. Using the information provided, calculate three different
overhead rates using three different allocation bases. In each case, be sure to
identify the allocation base.
9-5: The Santa Cruz Machine Shop allocates overhead based on machine hours,
using a budgeted overhead rate. The budgeted overhead rate is calculated using
an estimate of 6,000 machine hours in the denominator, and $60,000 in the
numerator. Actual overhead was $500 less than budgeted. Actual machine hours
were 1,500 more than budgeted. Calculate the misapplied overhead. Be sure to
indicate whether this misapplied overhead is underapplied or overapplied.
9-6: Following is information for Penquo, Inc., which makes crayons in its
|
|
Budget |
Actual |
|
Production (# of boxes of crayons) Total Direct Costs (materials & labor) Total Machine Hours Overhead (fixed and variable) |
1,000 $ 2,000 140 $2,800 |
800 $ 2,400 100 $3,000 |
Penquo allocates overhead using a budgeted overhead rate, using machine hours as the allocation base. The overhead rate is then applied to product based on actual machine hours incurred. In other words, the company uses a Normal Costing system.
Required:
A) What is the overhead rate?
B) How much overhead would be applied to each box of crayons?
C) What is the actual direct cost of each box of crayons?
9-7: The Rio Grande Tile Company uses a budgeted overhead rate, and direct labor costs (i.e., direct labor dollars) as the allocation base. Overhead is applied using actual labor costs incurred. Following is information for January 2005. The labor wage rate was budgeted at $6 per hour, but was actually $8 per hour. Overhead was budgeted at $42,000, but was actually $49,000.
|
|
Ceramic Tiles |
Slate Tiles |
Total |
|
Production: Budgeted Actual Total Direct labor hours: Budgeted Actual |
4,000 3,000 500 400 |
2,000 4,000 200 300 |
6,000 7,000 700 700 |
Required:
A) Calculate
the overhead rate. How much overhead
would be allocated to all 4,000 slate tiles?
B) Now
assume the company uses a budgeted overhead rate, direct labor hours as the
allocation base, and applies overhead based on actual direct labor hours
incurred. How much overhead would be applied to each ceramic tile?
C) Now
assume the company allocates overhead using direct labor hours as in part B.
What is the misapplied overhead? Is overhead overapplied or underapplied?
9-8: The Svendsgaard Organic Cereal Company makes cereal. Following is information for November:
|
|
Actual
Information |
Budgeted
Information |
|
Pounds of cereal produced Total direct materials Total direct labor Total machine hours Total direct labor hours Total overhead |
800 pounds $3,200 $800 60 hours 45 hours $30,000 |
800 pounds $2,600 $800 50 hours 40 hours $30,000 |
Required:
A) Calculate the overhead rate using Normal Costing and machine hours as the allocation base.
B) Using Normal Costing, how much overhead will be applied to each pound of cereal?
C) Compute the amount of misapplied overhead.
9-9: Following is information for the James Woods Company, and one of the
products made by the company. The factory has the capacity to produce 1.5
million square feet of wood product.
|
|
Budget for the Company |
Actual for the Company |
Budget for Mahogany Laminate |
Actual for mahogany Laminate |
|
Production (in square feet) Direct Product Costs Variable Overhead Fixed Overhead |
1,000,000 $2,500,000 $2,000,000 $1,500,000 |
1,200,000 $2,880,000 $2,400,000 $1,200,000 |
50,000 $150,000 |
40,000 $128,000 |
Required:
A) Calculate the amount of overhead allocated to all of the
mahogany laminate if the company uses a budgeted overhead rate, square feet of
product as the allocation base, and applies the overhead rate based on actual
square feet produced.
B) Calculate the amount of overhead allocated to all of the mahogany laminate if the company uses a budgeted overhead rate, direct product cost as the allocation base, and applies the overhead rate based on actual direct product costs incurred.
C) Calculate the amount of overhead allocated to all of the mahogany laminate if the company uses a budgeted overhead rate, square feet of product as the allocation base, and applies the overhead rate based on actual square feet produced. However, the company allocates variable overhead and fixed overhead separately. The denominator for the overhead rate for variable overhead is budgeted square feet, and the denominator for the overhead rate for fixed overhead is factory capacity (in terms of square feet).
9-10: A factory makes jeans and chinos. Overhead was budgeted at $150,000,
but was actually $132,000. Budgeted production was 10,000 jeans and 5,000
chinos. Actual production was 10,000 jeans and 2,000 chinos. Overhead is
applied using a budgeted overhead rate, and the allocation base is units of
output.
Required:
A) Calculate the overhead rate.
B) How much overhead would be applied to the chinos
production line?
C) What is the misapplied overhead? Is it underapplied or
overapplied?
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Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printer-friendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu