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Exam 3: A Costing Framework and Cost Allocation

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Question 1

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Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct Labour cost. Any under- or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company: -The Cost of Goods Manufactured for August was:

A) £69,600.
B) £69,500.
C) £76,900.
D) £84,500.

E) All of the above
F) B) and C)

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Question 2

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Steele Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. Steele Company has provided the following estimated costs for next year. $\begin{array}{lrr} \text { Direct materials. } &£ 20,000\\ \text { Direct Labour } &60,000\\ \text { Sales commissions } &80,000\\ \text {Salary of production supenisor } &40,000\\ \text { Indirect materials } &8,000\\ \text { Advertising expense } &16,000\\ \text { Rent on factory equipment } &20,000\end{array}$ Steele estimates that 10,000 direct Labour hours and 16,000 machine hours will be worked during the year. The predetermined overhead rate per hour will be:

A) £4.25.
B) £8.00.
C) £9.00.
D) £10.25.

E) A) and B)
F) B) and C)

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Question 3

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Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct Labour cost. Any under- or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company: -The amount of direct materials cost in the August 31 Work in Process Stock account was:

The three cost categories appearing on a job cost sheet are: selling expense, manufacturing expense, and administrative expense

The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work in Process account

Newcastle Company's beginning and ending inventories for the month of January were as follows: $\begin{array}{lrr}&\text { January } 1&\text { January } 31\\ \text {Direct Materials } &£ 80,000 & £ 78,000\\ \text { Work in Process } &£ 155,000 &£ 166,000\\ \text { Finished Goods} &£ 90,000& £ 88,000\\\end{array}$ Production data for month follow: $\begin{array}{lrr} \text { Direct labour cost incurred.} &£ 215,000\\ \text { Actual manufacturing overhead cost incurred } &£ 145,000\\ \text {Direct materials purchases} &£ 160,000\end{array}$ Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year. - The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 70% of direct labour cost incurred) . Newcastle Company's manufacturing overhead for January was:

The sum of all amounts transferred from the Work in Process account and into the Finished Goods account represents the Cost of Goods Manufactured for the period

Nil Co. uses a predetermined overhead rate based on direct Labour cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was £600,000, based on an estimated volume of 50,000 direct Labour hours, at a direct Labour rate of £6.00 per hour. Actual manufacturing overhead amounted to £620,000, with actual direct Labour cost of £325,000. For the year, manufacturing overhead was

Snappy Company has a job-order cost system and uses a predetermined overhead rate based on direct Labour-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct Labour-hours were estimated at £100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of £5,000 in direct materials and £2,400 in direct Labour. The Labour rate is £6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct Labour-hours and had incurred £110,250 actual manufacturing overhead cost. - If Job #334 contained 200 units, the unit cost on the completed job cost sheet would be:

The Collins Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on Labour cost in Dept. A and on machine hours in Dept.B. At the beginning of the year, the company made the following estimates: $\begin{array}{lrr}&\text { DeptA}&\text { Depts B}\\ \text { Direct Labour cost } &£65,000&£42,000\\ \text { Manufacturing overhead } &91,000&48,000\\ \text {Direct Labour hours } &8,000&10,000\\ \text { Machine hours } &3,000&12,000\\\end{array}$ What predetermined overhead rates would be used in Dept A and Dept B, respectively?

Parsons Co. uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. Last year Parsons incurred £250,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount of £12,000 for the year. If the predetermined overhead rate was £8.00 per direct Labour hour, how many hours were worked during the year

Malcolm Company uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs The cost records for September will show: On September 1, the estimates for the month were: $\begin{array}{lrr} \text { Manufacturing overhead. } &£ 17,000\\ \text {Direct Labour hours. } &13,600\\\end{array}$ During September, the actual results were: $\begin{array}{lrr} \text { Manufacturing overhead} &£ 18,500\\ \text { Direct Labour hours.} &12,000\\\end{array}$

Johansen Company uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for the next year: $\begin{array}{lrr} \text { Direct materials } &£ 6,000 \\ \text { Direct Labour.} &20,000\\ \text { Rent on factory building. } &15,000\\ \text { Sales salaries } &25,000\\ \text { Depreciation on factory equipment.} &8,000\\ \text { Indirect Labour } &12,000\\\text { Production supervisor's salary } &15,000 \end{array}$ Johansen estimates that 20,000 direct Labour hours will be worked during the year. The predetermined overhead rate per hour will be:

Snappy Company has a job-order cost system and uses a predetermined overhead rate based on direct Labour-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct Labour-hours were estimated at £100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of £5,000 in direct materials and £2,400 in direct Labour. The Labour rate is £6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct Labour-hours and had incurred £110,250 actual manufacturing overhead cost. -Snappy's manufacturing overhead for the year was:

Newcastle Company's beginning and ending inventories for the month of January were as follows: $\begin{array}{lrr}&\text { January } 1&\text { January } 31\\ \text {Direct Materials } &£ 80,000 & £ 78,000\\ \text { Work in Process } &£ 155,000 &£ 166,000\\ \text { Finished Goods} &£ 90,000& £ 88,000\\\end{array}$ Production data for month follow: $\begin{array}{lrr} \text { Direct labour cost incurred.} &£ 215,000\\ \text { Actual manufacturing overhead cost incurred } &£ 145,000\\ \text {Direct materials purchases} &£ 160,000\end{array}$ Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year. - The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred) . Newcastle Company's cost of goods manufactured for January was:

Pinnini Co. uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. Last year, Pinnini Company incurred £225,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied £14,500 for the year. If the predetermined overhead rate was £5.00 per direct Labour hour, how many hours did the company work during the year

The Bristol Company uses a job-order cost system. The following data were recorded for June: $\begin{array}{lrr}& \text {June 1 } && \text {Added During June } \\ &\text {Work in Process } & \text { Direct} & \text {Direct}\\\\\end{array}$ $\begin{array}{lrr}\text { Job Number} &\text { Stock }& \text { Materials }&\text { Labour }\\235 & £ 2,500 & £ 600 &£ 400 \\236 &£ 1,500 & £ 800 & £ 1,000 \\237 & £ 1,000 & £ 1,200 & £ 1,750 \\238 & £ 800 & £ 1,500 &£ 2,250 \end{array}$ In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers. Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol's Work in Process Stock balance on June 30 would change to:

Apportion the overheads from the two service dept to the others using the step method and the appropriate bases. Do the canteen first.

Birk applies overhead to jobs at a predetermined rate of 80% of direct Labour cost. Job No. 5, the only job still in process on April 30, has been charged with direct Labour of £2,000. What was the amount of direct materials charged to Job No. 5

Newcastle Company's beginning and ending inventories for the month of January were as follows: $\begin{array}{lrr}&\text { January } 1&\text { January } 31\\ \text {Direct Materials } &£ 80,000 & £ 78,000\\ \text { Work in Process } &£ 155,000 &£ 166,000\\ \text { Finished Goods} &£ 90,000& £ 88,000\\\end{array}$ Production data for month follow: $\begin{array}{lrr} \text { Direct labour cost incurred.} &£ 215,000\\ \text { Actual manufacturing overhead cost incurred } &£ 145,000\\ \text {Direct materials purchases} &£ 160,000\end{array}$ Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year. -The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 70% of direct labour cost incurred) . Newcastle Company's total manufacturing cost for January was: