MBA Student Universidad de Manila Definitions STANDARD COSTS – are predetermined or target unit costs of production which should be attained under efficient conditions. It is the amount and costs of direct material‚ direct labor‚ and factory overhead required to produce one unit of finished product. STANDARD COST SYSTEM – is an accounting system which uses standard costs rather than actual costs to account for units as they flow through the manufacturing process. Objectives of Standard Cost
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. (TCO 2) Bubba’s Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours. For the current year overhead is estimated at $2‚250‚000 and direct labor hours are budgeted at 415‚000 hours. Actual overhead was $2‚200‚000 and actual direct labor hours worked were 422‚000. (a) Calculate the predetermined overhead rate. Rate‚ based on budgeted factory overhead cost and budgeted activity‚ that is established before a period begins. 2‚250‚000/415‚000 Budgeted
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year-end balance sheet at $156‚800. There was no finished-goods inventory on this date. Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company ’s practical capacity‚ in terms of direct-labor hours multiplied by the budgeted direct-labor rate.) Budgeted totals for 2002 for direct labor and manufacturing overhead are $4‚200‚000 and $5‚460‚000‚ respectively. Actual results for the year are as follows: Actual Results Direct
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business use. To better estimate costs‚ the company recently adopted an activity-based costing system. Last year‚ the company incurred $300‚000 in overhead costs. Based on an intense study of their company‚ the following activities‚ allocation bases‚ and percentages of overhead costs were determined: Activity | Allocation Base | Proportion of Overhead Cost | Purchasing | Number of purchase orders | 25% | Materials processing | Number of square feet | 50% | Sales | Number of sales orders |
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Chapter 3 - Activity-Based Costing -Rather than use a plantwide overhead rate (POHR)‚ many companies use departmental overhead rates with a different predetermined overhead rate in each production department. The nature of the work performed in a department will determine the department’s allocation base -Ex. Overhead costs in a machining department may be allocated on the basis of machine-hours. In contrast‚ the overhead costs in an assembly department may be allocated on the basis of direct
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model for the strategic analysis. To understand the root cause of problems‚ we calculate the overhead allocation rate for each of the model years from 1988 through 1990: 1987 1988 1989 1990 OH Rate 435% 435% 575% 565% It can be seen from the table that‚ after outsource of Muffler-exhaust systems and oil pans‚ the overhead rate was dramatic increase from 435 % in 1988 to 575% in1989. The overhead costs went from 109‚890 in 1988 to 78‚157 in 1989‚ finding a 28.88% reduction. But at the same
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Solution to the question number E2-25 (a) Month Machine Hours Overhead costs 1 425 $2‚525 2 460 $2‚961 3 410 $2‚484 4 480 $2‚649 5 502 $2‚705 6 418 $2‚496 variable cost component (b) = Change in total cost / Change in activity level Here‚ highest activity level is on month 5 = 502 machine hours; lowest level of activity is on month 3 = 410 machine hours b= (2705 – 2484) / (502 – 410) = 2.40 Activity level High Low Total Cost $2‚705 $2‚484 Less: Variable costs 502 × 2.40 1205 410 ×
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disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller‚ Yu Chia-yi‚ in determining the best costing method for their overhead costs. In addition we also aim to understand the following concepts: 1. Differences between traditional costing systems and activity-based costing and; 2. Proper allocation of overhead costs with identification of activities and its associated costs. Zauner Ornaments is launching three different products for their expansion. Yu doubts if
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direct labor-hours in the base for the predetermined overhead rate usually results in a big boost in net operating income at the end of the fiscal year. Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The artificially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the overhead throughout the year is all recognized in December
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E. Jones 01/14/2011 ACC 560 Case 1: Greetings Inc.: Job Order Costing 1. Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job-order costing system? A predetermined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The predetermined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations
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