acc206 Overhead application: Working backward



The Towson Manufacturing Corporation applies overhead on the
basis of machine hours. The following divisional information is presented for
your review:

Division A Division

Actual machine hours 22,500 ?

Estimated machine hours 20,000 ?

Overhead application rate $4.50 $5.00

Actual overhead $110,000 ?

Estimated overhead ? $90,000

Applied overhead ? $86,000

Over- (under-) applied overhead ? $6,500


2. Computations
using a job order system

General Corporation employs a job order cost system. On May
1 the following balances were extracted from the general ledger;

Work in process $ 35,200

Finished goods 86,900

Cost of goods sold 128,700

Work in Process consisted of two jobs, no. 101 ($20,400) and
no. 103 ($14,800). During May, direct materials requisitioned from the
storeroom amounted to $96,500, and direct labor incurred totaled $114,500.
These figures are subdivided as follows:

Direct Materials
Direct Labor

Job No. Amount Job No. Amount

101 $5,000 101 $7,800

115 19,500 103

116 36,200 115

Other 35,800 116

$96,500 Other 25,900


Job no. 115 was the only job in process at the end of the
month. Job no. 101 and three “other” jobs were sold during May at a
profit of 20% of cost. The “other” jobs contained material and labor
charges of $21,000 and $17,400, respectively.

General applies overhead daily at the rate of 150% of direct
labor cost as labor summaries are posted to job orders. The firm’s fiscal year
ends on May 31.


a. Compute
the total overhead applied to production during May.

b. Compute
the cost of the ending work in process inventory.

c. Compute
the cost of jobs completed during May.

d. Compute
the cost of goods sold for the year ended May 31.

3. High-low

The following cost data pertain to 20X6 operations of
Heritage Products:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Shipping costs $58,200 $58,620 $60,125 $59,400

Orders shipped 120 140 175 150

The company uses the high-low method to analyze costs.

a. Determine
the variable cost per order shipped.

b. Determine
the fixed shipping costs per quarter.

c. If
present cost behavior patterns continue, determine total shipping costs for
20X7 if activity amounts to 570 orders.

4. Break-even
and other CVP relationships

Cedars Hospital has average revenue of $180 per patient day.
Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.

a. How many
patient days does the hospital need to break even?

b. What
level of revenue is needed to earn a target income of $540,000?

c. If
variable costs drop to $36 per patient day, what increase in fixed costs can be
tolerated without changing the break-even point as determined in part (a)?

5. Direct
and absorption costing

The information that follows pertains to Consumer Products
for the year ended December 31, 20X6.

Inventory, 1/1/X6 24,000 units

Units manufactured 80,000

Units sold 82,000

Inventory, 12/31/X6 ? units

Manufacturing costs:

Direct materials $3 per unit

Direct labor $5 per unit

Variable factory overhead $9 per unit

Fixed factory overhead $280,000

Selling & administrative expenses:

Variable $2 per unit

Fixed $136,000

The unit selling price is $26. Assume that costs have been
stable in recent years.


a. Compute
the number of units in the ending inventory.

b. Calculate
the cost of a unit assuming use of:

1. Direct

2. Absorption

c. Prepare
an income statement for the year ended December 31, 20X6, by using direct

d. Prepare
an income statement for the year ended December 31, 20X6, by using absorption


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