# ACCT346 Week 2 Homework Assignment

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Question # 00630279 Subject Accounting Topic Accounting Tutorials: 1
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ACCT346 Week 2 Homework Assignment

Question 1. The Johnson Company applies a predetermined manufacturing overhead rate based on direct labor hours to allocate (or charge) manufacturing overhead costs to the many different production jobs it performs. For the most recent fiscal year, the company originally estimated that it would incur \$750,000 in total manufacturing overhead during the year and that a total of 250,000 direct labor hours would be worked. After the year was over, the company subsequently determined it had actually incurred manufacturing overhead costs of \$800,000 and 200,000 direct labor hours had been worked during the year.

Part A. What was the predetermined manufacturing overhead rate that the company originally calculated and applied to each individual production job throughout the year? Remember that the company implements this rate based upon direct labor hours, so your answer will be expressed in dollars per direct labor hour. Please show your calculation.

Part B. What was the total amount of manufacturing overhead that was applied (allocated) to all of the production jobs that were worked throughout the year? Hint: you’ll need to use the answer from Part A above along with some of the other given data to help you calculate this.

Part C. At the end of the year, the company was able to calculate, after the fact, how much it had either under-allocated (under-applied) or over-allocated (over-applied) for its manufacturing overhead for the year. How much was this amount? Also, be sure to additionally specify whether this dollar amount was under-allocated or over-allocated. Hint: you’ll need to use the answer from Part B along with some of the other given data to help you calculate this.

Question 2. The following account balances and amounts for the month of January were obtained from the general ledger of the Smith Company.

Beginning Work-in-Process (WIP) Inventory Balance \$ 0

Ending WIP Inventory Balance 50,000

Total Direct Material Costs Used in January Production 150,000

Total Direct Labor Costs for January Production 70,000

Also note that the Smith Company applies a predetermined manufacturing overhead rate based on direct labor costs (dollars) to allocate (or charge) manufacturing overhead costs to the many different production jobs it performs. At the beginning of the year, the company originally budgeted \$450,000 of manufacturing overhead for the year and estimated \$150,000 of direct labor costs for the year.

Part A. What was the predetermined manufacturing overhead rate that the company originally calculated and applied to each individual production job throughout the year? Remember that the company implements this rate based upon direct labor costs (dollars), so this rate will be expressed as either a percentage or a multiplier (e.g., 150% or a 1.5 times multiplier). Please show your calculation.

Part B. What was the total amount of manufacturing overhead that was applied (allocated) to all of the production jobs worked for January? Hint: you can calculate this amount using the result from Part A above along with the direct labor cost for January.

Part C. Calculate the total manufacturing costs for the month of January. Hint: you’ll need to use the answer from Part B plus some other data provided above.

Part D. Calculate the Cost of Goods Manufactured (COGM) for the month of January. Hint: you’ll need to use the answer from Part C plus some other data provided above.

Question 3. The Jones Company manufactures two separate product lines: Segways and Hoverboards. The annual production and sales of Segways is 800 units, while 2,400 Hoverboards are produced and sold each year. The company has been using a traditional, fairly simplistic way of allocating (applying) its total manufacturing overhead costs between the Segway and Hoverboard product lines by simply apportioning its total overhead expenses based upon the number of direct labor hours worked in the factory for each of the two separate products.

However, Jones’ management is now looking at the possibility of instead changing to an activity-based costing (ABC) approach for its products. To implement activity-based costing, the company has identified three major cost pools comprising its manufacturing overhead: production line set-up costs, clean-up costs, and tear-down costs. The following data table was compiled for these cost pools to summarize the estimated activity and associated expense amounts for the total annual overhead:

 Expected Activity Activity Cost Pool Total Overhead Cost Segways (# of “events”) Hoverboards (# of “events”) Total (# of “events”) Production line set-up costs \$52,000 600 2,000 2,600 Production line clean-up costs \$19,500 150 500 650 Production line tear-down costs \$6,500 600 2,000 2,600

Note that there are three parts to this question and it extends onto the next page.

Part A. Using the table of estimates provided above for the anticipated activities related to overhead, calculate the activity rate for each of the three cost pools. In other words, you will calculate three different answers: the average cost (dollars) for each “set-up event,” cost for each “clean-up event,” and cost for each “tear-down event.

Part B. Specifically for the Hoverboards, what is the total activity-based cost for each of the three individual activity cost pools: the set-ups, clean-ups, and tear-downs? Show the calculation for each of these three activity totals. Hint: you’ll need to use results from Part A plus other data from the table.

Part C. Specifically for the Hoverboards, what are the annual total overhead costs based upon the activity-based costing analysis? Also, what is the overhead cost per unit (for Hoverboards)? Hint: you’ll need to use the results from Part B along with some other given data, and simply assume that the total overhead costs are comprised of the total set-up costs, clean-up costs, and tear-down costs.

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## ACCT346 Week 2 Homework Assignment

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