Ray Company provided the following excerpts from its Production

Ray Company provided the following excerpts from its Production Department’s flexible budget performance report. (Round "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Ray Company Production Department Flexible Budget Performance Report For the Month Ended August 31 Actual Results Spending Variances Flexible Budget Activity Variances Planning Budget Labor-hours (q) 9,630 9,630 9,150 Direct labor ( $21.50 q) $209,205 $2,160 U $207,045 U Indirect labor ( + $1.50 q) $1,930 F $22,015 720 Utilities ( $8,000 + q) $1,600 U $1,056 U $28,130 Supplies ( + q) $5,150 $4,594 $144 $4,450 Equipment depreciation ( $82,150 ) $82,150 $0 None $82,150 $0 None $82,150 Factory administration ( $19,000 + $1.40 q) Total expense 378,568

SOLUTION PREVIEW

Ray Company Production Department Planning Budget For the Month Ended August 31
Budgeted labor-hours (q)	9,150
Direct labor ($21.50q)........................................................	$196,725
Indirect labor ($7,570 + $1.50q)........................................	21,295

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Finney Inc. has conducted an analysis of overhead costs related

BE4-2 Finney Inc. has conducted an analysis of overhead costs related to one of its product lines using a traditional costing system (volume-based) and an activity-based costing system. Here are its results.

Traditional CostingABC

Sales revenue $600,000$600,000

Overhead costs:

Product RX3 $ 34,000$ 50,000

 Product Y12 36,00020,000

$ 70,000$ 70,000

Explain how a difference in the overhead costs between the two systems may have occurred.

TUTORIAL PREVIEW

Under ABC, overhead costs are shifted from the high-volume products to the low-volume products. This shift results in more accurate costing for two reasons:

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Wilmington, Inc. manufactures five models of kitchen appliances

E4-8 Wilmington, Inc. manufactures five models of kitchen appliances. The company is installing activity-based costing and has identified the following activities performed at its

Mesa plant.

 1. Designing new models.

 2. Purchasing raw materials and parts.

 3. Storing and managing inventory.

 4. Receiving and inspecting raw materials and parts.

 5. Interviewing and hiring new personnel.

 6. Machine forming sheet steel into appliance parts.

 7. Manually assembling parts into appliances.

 8. Training all employees of the company.

 9. Insuring all tangible fixed assets.

10. Supervising production.

 11. Maintaining and repairing machinery and equipment.

 12. Painting and packaging finished appliances.

Having analyzed its Mesa plant operations for purposes of installing activity-based costing, Wilmington, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.

Instructions

Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Wilmington’s five products.

TUTORIAL PREVIEW

Activities	Cost driver(s)
1. Designing new models.	1. Number of engineering change orders; hours of designing
2. Purchasing raw materials and parts.	2. Number of orders processed

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Con-Aggie Manufacturing Company is studying the

P4-10 Con-Aggie Manufacturing Company is studying the results of applying factory overhead to production. The following data have been used: estimated factory overhead: $60,000; estimated materials costs, $50,000; estimated direct labor costs $60,000; estimated direct labor hours 10,000; estimated machine hours 20,000; work in process at the beginning of the month, none.

 The actual factory overhead incurred for the month of November was $75,000, and the production statistics on November 30 are as follows:

Job Materials Cost Direct Labor Costs Direct Labor Hours Machine Hours Date Jobs Completed

101        5,000                6,000                1000                 3,000              10-Nov

102        7,000                12,000  2,000 3,200 14-Nov

103     8,000 13,500 2,500                4,000                20-Nov

104       9,000                15,600 2,600 3,400                Inprocess

105        10,000              29,000 4,500                6,500                26-Nov

106        11,000              2,400 400                   1,500                In process

Total      50,000              78,500 13,000 21,600

Required:

1. Compute the predetermined rate, based on the following: a. direct labor cost, b. direct labor hours, c. machine hours.                                                                                    

2. Using each of the methods, compute the estimated total cost of each job at the end of the month.                                                                               

3. Determine the under- or overapplied factory overhead, in total, at the end of the month under each of the methods.

4. Which method would you recommend, and why? 

TUTORIAL PREVIEW

1.	Predetermined rates:
a.	Direct labor cost rate		Estimated overhead		Estimated labor cost
	100%	=	60,000	÷	60,000

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Cake Products Inc, is divided into five departments, mixing, blending,

P4-5 Cake Products Inc, is divided into five departments, mixing, blending, finishing, factory office and building maintenance. The first three departments are engaged in production work. Factory Office and Building Maintenance are service departments. During the month of June, the following factory overhead was incurred for the various departments:             

mixing   $21,000                       factory office $9,000

Blending  $18,000                    building maintenance $6,400

finishing  $25,000 

The bases for distributing service department expenses to the other departments follow:

Building maintenance - on the basis of floor space occupied by the other departments as follows: mixing 10,000 sqft, blending $4,500 sqft, finishing 10,500 sqft and factory office 7,000 sq ft.

Factory office - on the basis of number of employees as follows : mixing 30, blending 20 and finishing 50 Prepare schedules showing the distribution of the service departments expenses for the following:

1. The direct distribution method                 

2. The sequential distribution method in the order of number of other departments served.

TUTORIAL PREVIEW

		Bldg.	Factory
Description		Maint.	Office	Mixing	Blending	Finishing	Total
Total from factory overhead analysis sheets…		6,400	9,000	21,000	18,000	25,000	79,400
Build. Maint distribution -- (Basis sq. ft. floor
space)

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