Sheddon Industries produces two products. The products' identified costs are as follows:
| Product A | Product B | |||||||||||||
| Direct materials | $ | 26,000 | $ | 21,000 | ||||||||||
| Direct labor | 18,000 | 30,000 | ||||||||||||
The company's overhead costs of $60,000 are allocated based on labor cost. Assume 10,000 units of product A and 11,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
Multiple Choice
Explanation
Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base)
Allocation rate = $60,000 ÷ ($18,000 + $30,000) = $1.25 per direct labor dollar
Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object
Allocation of overhead cost to Product A= $1.25 per direct labor dollar × $18,000 = $22,500
Direct material cost of $26,000 + Direct labor cost of $18,000 + Overhead cost of $22,500 = $66,500
Allocation rate = $60,000 ÷ ($18,000 + $30,000) = $1.25 per direct labor dollar
Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object
Allocation of overhead cost to Product A= $1.25 per direct labor dollar × $18,000 = $22,500
Direct material cost of $26,000 + Direct labor cost of $18,000 + Overhead cost of $22,500 = $66,500
Starwood Corporation has current assets of $390,000, total current liabilities of $940,000, net credit sales of $1,490,000, beginning accounts receivable of $84,000, and ending accounts receivable of $88,000. What is Starwood's accounts receivable turnover?
Multiple Choice
Explanation
Accounts receivable turnover = Net credit sales ÷ [(Beginning accounts receivable + ending accounts receivable) ÷ 2]
Accounts receivable turnover = $1,490,000 ÷ [($84,000 + $88,000) ÷ 2] = $1,490,000 ÷ $86,000 = 17.3 times
Accounts receivable turnover = $1,490,000 ÷ [($84,000 + $88,000) ÷ 2] = $1,490,000 ÷ $86,000 = 17.3 times
The Winchester Company estimates that its overhead costs will amount to $452,400 and the company’s manufacturing employees will work 87,000 direct labor hours during the current year. If actual overhead costs for the year amounted to $494,000 and actual labor hours amounted to 92,000, then overhead would be:
Multiple Choice
Explanation
Predetermined overhead rate = Expected overhead costs ÷ Expected amount of allocation base
Predetermined overhead rate = $452,400 ÷ 87,000 direct labor hours = $5.20 per direct labor hour
Overhead applied = Actual amount of allocation base × Predetermined overhead rate
Overhead applied = 92,000 direct labor hours × $5.20 per direct labor hour = $478,400
Overapplied (underapplied) overhead = Applied overhead − Actual overhead costs
Overapplied (underapplied) overhead = $478,400 − $494,000 = −$15,600
Predetermined overhead rate = $452,400 ÷ 87,000 direct labor hours = $5.20 per direct labor hour
Overhead applied = Actual amount of allocation base × Predetermined overhead rate
Overhead applied = 92,000 direct labor hours × $5.20 per direct labor hour = $478,400
Overapplied (underapplied) overhead = Applied overhead − Actual overhead costs
Overapplied (underapplied) overhead = $478,400 − $494,000 = −$15,600
Shia Company makes a product that is expected to require 5 hours of labor per unit of product. The standard cost of labor is $5.90. Shia actually used 5.10 hours of labor per unit of product. The actual cost of labor was $6.00 per hour. Shia made 1,500 units of product during the period. Based on this information alone, the labor price variance is:
Multiple Choice
Explanation
Price variance = (Actual price – Standard price) × Actual quantity
Price variance = ($6.00 per hour – $5.90 per hour) × (1,500 units × 5.10 hours per unit)
Price variance = $0.10 per hour × 7,650 hours = $765
Since the actual price was greater than the standard price, the variance is unfavorable.
Price variance = ($6.00 per hour – $5.90 per hour) × (1,500 units × 5.10 hours per unit)
Price variance = $0.10 per hour × 7,650 hours = $765
Since the actual price was greater than the standard price, the variance is unfavorable.
Ting Company started the accounting period with the following beginning balances:
Raw Materials Inventory, $38,000; Work in Process Inventory, $86,000; and Finished Goods Inventory, $16,000. During the accounting period, the company purchased $56,000 of raw materials and ended the period with $12,000 in raw material inventory. Direct labor costs for the period were $116,000 and $32,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $78,000 and ending finished goods was $31,000. Goods were sold during the period for $346,000. The amount of cost of goods manufactured (i.e., amount transferred from work in process to finished goods) would be:
Raw Materials Inventory, $38,000; Work in Process Inventory, $86,000; and Finished Goods Inventory, $16,000. During the accounting period, the company purchased $56,000 of raw materials and ended the period with $12,000 in raw material inventory. Direct labor costs for the period were $116,000 and $32,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $78,000 and ending finished goods was $31,000. Goods were sold during the period for $346,000. The amount of cost of goods manufactured (i.e., amount transferred from work in process to finished goods) would be:
Multiple Choice
Explanation
Total manufacturing costs = (Beginning raw materials inventory + Purchases – Ending raw materials inventory) + Direct labor + Actual overhead costs
Total manufacturing costs = ($38,000 + $56,000 – $12,000) + $116,000 + $32,000 = $230,000
Cost of goods manufactured = Beginning work in process + Total manufacturing costs – Ending work in process
Cost of goods manufactured = $86,000 + $230,000 – $78,000 = $238,000
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