Federal Taxes and Management Decisions

Managerial Accounting

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DeVry University ACCT346 Weekly Assignment – ANSWERS Week 2 Directions: Complete the three questions below and please be sure to show all of your calculation work along with the ﬁnal answers in the box provided for each question. Also note that Question #3 has TWO parts, Part A and Part B. To give yourself more room to insert your calculations and answers, you may need to add more rows or columns to the boxes below. 1. Biltz Company uses a predetermined manufacturing overhead rate based on direct labor hours to allocate (apply or charge) manufacturing overhead costs to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. The company originally estimated that it would incur $525,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked. How much was manufacturing overhead over-allocated (over-applied) or under- allocated (under-applied) for the year? Answer : Note that for this problem all ﬁgures are annual values, as given. Step 1 : Predetermined Manufacturing Overhead Rate = $525,000 estimated manufacturing overhead costs / 150,000 estimated direct labor hours = $3.50 per DLH Step 2 : $3.50 per DLH × 135,000 actual hours worked = $472,500 allocated (applied) to all jobs worked for the year Step 3 : Actual Manufacturing Overhead Costs – Allocated Overhead Applied to All Jobs for the Year = $582,000 - $472,500 = $109,500 under-allocated (under-applied) manufacturing overhead 2. The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company: Work-in-Process (WIP) inventory $0 Raw materials inventory $28,000 Finished goods inventory $40,000 Additional data: 1) Actual manufacturing overhead for January amounted to $62,000. 2) Total direct labor cost for January was $63,000. 3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs. 4) The only job unﬁnished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000. 5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January. 6) January 31 balance in raw materials inventory was $35,000. 7) Finished goods inventory balance on January 31 was $34,500. What is the cost of goods manufactured for January? Answer : Predetermined Manufacturing Overhead Rate (based on annual estimates ) = $350,000 budgeted manufacturing overhead / $250,000 budgeted direct labor costs = 140% (or a 1.4 times multiplier) So for the month of January : Manufacturing overhead allocated (applied) = $63,000 actual direct labor costs × 140% = $88,200 Total Manufacturing Costs (for month of January) = Direct Material + Direct Labor + Manufacturing Overhead = $123,000 + $63,000 + $88,200 = $274,200 Note: we’re given the Beginning WIP Balance for January = $0. However, we’ll need to ﬁnd the Ending WIP Balance for January (since it was not given to us directly) …so for the only unﬁnished job (Job No. 151): Direct Materials + Direct Labor + Manufacturing Overhead Applied to Job No. 151 = $14,000 + $5,200 + (1.40 * $5,200) = $26,480 Cost of Goods Manufactured (for January) = Beginning WIP Balance + Total Manufacturing Costs – Ending WIP Balance = $0 + $274,200 - $26,480 = $247,720

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