CH 12 SM
CH 12 SM
CH 12 SM
DISCUSSION QUESTIONS
or to be performed, i.e., for estimating purposes. Ordinarily, the base selected should be
closely related to functions represented by
the applied overhead cost. If factory overhead
costs are predominantly labor oriented, such
as supervision and indirect labor, the proper
base would probably be direct labor hours. If
factory overhead costs are predominantly
related to the cost incurred in the ownership
and operation of the machinery, the proper
base would probably be machine hours.
Another objective in selecting the base is
to minimize clerical cost and effort relative to
the benefits attained. When two or more
bases provide approximately the same
applied overhead cost to specific units of production, the simplest base should be used.
Q12-7. (a) Theoretical capacity is actually the maximum production possible from a given
plant with no allowance made for cessation
of operations for holidays, weekends, materials shortages, or machine breakdowns.
(b) Practical capacity is theoretical capacity
less an allowance for interruptions such
as breakdowns, delays in receiving supplies, and worker absences. Practical
capacity is usually 75 to 85 percent of
theoretical capacity.
(c) Expected actual capacity is practical
capacity adjusted for the lack of sufficient
demand in a single operating period and
may be used in building operating budgets when expected capacity differs substantially from normal capacity.
(d) Normal capacity is practical capacity
adjusted to give consideration to the lack
of sufficient demand over a period long
enough to include cyclical and seasonal
fluctuations. This is usually the basis for
long-range planning, standards, and
preferably for the determination of overhead rates.
Q12-8. The underapplied overhead will be higher If
maximum capacity is used and lower if normal is used. If this cost is charged to the
12-1
12-2
Chapter 12
12-2
Chapter 12
12-3
EXERCISES
E12-1
(1)
$1,750,000 fixed overhead and $720 variable overhead per ton, calculated as
follows:
For both the normal capacity and expected actual capacity, the problem states
the total budgeted overhead cost and the number of tons of activity. The highlow method of estimating cost behavior can be used to determine the overhead budget, using those two points:
Activity Level
Normal capacity
Expected actual
Difference
Tons
6,000
5,000
1,000
Budgeted
Overhead
$6,070,000
5,350,000
$ 720,000
$720, 000
Variable
=
= $720 va riable overhead per ton
1, 000 tons
overhead rate
Budgeted fixed overhead
=
=
or, budgeted
fixed overhead
=
=
12-4
Chapter 12
E12-1 (Concluded)
(2)
The predetermined rate at practical capacity would be $938.75 per ton. Using
the budget for fixed and variable overhead, a predetermined overhead rate can
be calculated at any level of activity within the relevant range. Assuming practical capacity is within that range, the calculation is:
Predetermined
Budgeted total overhead at practical capacity
overhead rate at
=
practical capacity
Pr actical capacity in tons
(8,000 tons)
Budgeted fixed overhead
+ Budgeted variable
overhead at 8, 000 tons $1, 750, 000 + ($720 8, 000)
=
=
8, 000 tons
8, 000 tons
=
or,
E12-2
Work in process balance, September 30....................
Less materials still in process ....................................
Factory overhead and direct labor still in process ...
Charged to
Work in Process
Amount %
Factory overhead............... $15,840
44%*
Direct labor ....................... 20,160
56
$36,000 100%
*$15,840 $36,000 = 44%
(or)
$6,640
6,640
$12,200
5,560
$ 6,640
= $2,921.60
= 3,718.40
$6,640.00
Chapter 12
12-5
E12-3
(1)
150 people 8 hrs. per day 5 days per week 48 weeks =
288,000 direct labor hrs.
(2)
150 people 10 hrs. per day 4 days per week 48 weeks =
288,000 direct labor hrs.
E12-4
Factory overhead rates:
(1) Units of production:
E12-5
(1)
(2)
E12-6
Actual factory overhead ...........................................................
Applied factory overhead (52,500 machine hours $5.10*) .
Underapplied factory overhead for the period.......................
*$255,000 50,000 budgeted machine hours = $5.10
$281,000
267,750
$ 13,250
12-6
Chapter 12
E12-7
(1)
Work in Process............................................................
Materials ...............................................................
Work in Process............................................................
Payroll ...................................................................
Factory Overhead Control ...........................................
Materials, Payroll, Accruals, and Various Credits
Work in Process............................................................
Applied Factory Overhead..................................
Applied Factory Overhead...........................................
Factory Overhead Control ..................................
Overhead rate :
(2)
1,450,000
1,450,000
928,000
928,000
561,600
561,600
551,000
551,000
551,000
551,000
E12-8
Actual factory overhead...............................................
Applied factory overhead (4,100 units $2.46)* .......
Overapplied overhead..................................................
*Variable factory overhead rate ...................................
Fixed factory overhead rate ($1,440 4,000 units) ...
Total factory overhead rate ........................................
$ 9,000
10,086
$(1,086)
$2.10
.36
$2.46
E12-9
(1)
Applied factory overhead:
$16, 920
= $ .47 fixed portion of rate
36, 000 machine hours
2.10 variable portion of rate
$2.57 total rate
$2.57 2,700 machine hours = $6,939 applied factory overhead
(2)
$7,400
6,939
$ 461
Chapter 12
12-7
E12-10
Actual factory overhead ...........................................................
Applied factory overhead (210,000 machine hours $4) .....
Overapplied factory overhead .................................................
$832,000
840,000
$ (8,000)
E12-11
(1)
(2)
(3)
$411,000
420,000
$ (9,000)
$ 14,134
16,234
$ (2,100)
E12-12
12-8
Chapter 12
E12-13
(2)
(3)
300
1,900
3,800
6,000
240
1,920
3,840
6,000
300
1,900
3,800
6,000
Chapter 12
12-9
PROBLEMS
P12-1
(1)
Actual overhead incurred ............................................ $3,470,000
Applied overhead* ........................................................
3,325,000
Underapplied overhead................................................ $ 145,000
*actual MH predetermined rate based on expected actual capacity
= 9,500 MH ($3,500,000/10,000 MH)
= 9,500 MH $350 per MH = $3,325,000
(2)
Machine
Hours
10,000
8,000
2,000
Budgeted
Overhead
$3,500,000
3,000,000
$ 500,000
$500, 000
Variable
=
= $250 var iable overhead per MH
overhead rate
2, 000 MH
Budgeted fixed overhead
=
=
or, budgeted
fixed overhead
=
=
Then, using the budget for fixed and variable overhead, a predetermined overhead rate
can be calculated at any level of activity within the relevant range. Assuming practical
capacity is within that range, the calculation is:
12-10
Chapter 12
P12-1 (Concluded)
Predetermined
Budgeted total overhead at practical capacity
overhead rate at
=
practical capacity
Practical capacity in MH
(15,000 MH )
Budgeted fixed overhead
+ Budgeted variable
=
3,460,000
10,000
(4)
Work in process............................................................
Finished goods .............................................................
Cost of goods sold.......................................................
Total ......................................................................
Work in Process (2.5 % of $10,000) ............................
Finished Goods ............................................................
Cost of Goods Sold......................................................
Factory Overhead Control ..................................
3,460,000
10,000
Account Percentage
Balance
of Total
$ 200,000
2.5%
400,000
5.0%
7,400,000
92.5%
$8,000,000
100.0%
250
500
9,250
10,000
Total ..................................................................
Maintenance.....................................................
Indirect labor....................................................
(1)
Variable
Overhead
per Unit
Factory
Overhead
Cost
Depreciation on
factory building
and equipment.................................................
P12-2
=
=
$18,000
=
=
=
=
$70,000
$10,500
a
$ 8,000
a
a + $1.20 (15,000)
a + $2.00 (15,000)
a + $ .70 (15,000)
a + $ .40 (15,000)
$58,000
40,000
1,500
2,000
$14,500
$4.30
1.20
2.00
.70
$ .40
Fixed
Overhead
(2)
Chapter 12
12-11
12-12
Chapter 12
P12-3
(1)
Total cost of Job 50:
Work in process, December 1 ............................................................
December costs:
Materials ......................................................................................
Direct labor (($102,000 8,500) 3,500) ..................................
Factory overhead ($4.50 3,500) ..............................................
(2)
(3)
(4)
$ 54,000
45,000
42,000
15,750
$156,750
$ 3,500
15,000
6,000
3,500
8,000
5,000
$39,000
(5)
(6)
$39,000
38,250
$ 750
Chapter 12
12-13
P12-4
(1)
Actual factory overhead:
Indirect materials and supplies .......................................................... $ 18,000
Indirect labor ........................................................................................
53,000
Employee benefits ...............................................................................
23,000
Depreciation .........................................................................................
12,000
Supervision ..........................................................................................
20,000
$126,000
(2)
(3)
(4)
12-14
Chapter 12
P12-5
(1)
Predetermined factory overhead rate based on normal capacity:
(2)
$29, 250
45, 000 MH
$18, 000
60, 000 MH
$18, 000
=
45, 000 MH
(3)
(4)
(5)
$ 47,100
44,650
$ 2,450
(6)
$ 47,100
49,350
$ (2,250)
Chapter 12
P12-6
(1)
Work in Process:
Direct materials ......... $ 9,000
Direct labor ................ 16,000
Factory overhead
(2,000 $3.60) .....
7,200
Total................ $32,200
12-15
Finished Goods:
Direct materials ................ $10,000
Direct labor ....................... 40,000
Factory overhead
(5,000 $3.60) ............. 18,000
Total ....................... $68,000
(2)
Supervision ..........................................................................................
Indirect labor ........................................................................................
Heat, light, and power..........................................................................
Depreciationfactory buildings.........................................................
Property taxfactory facilities...........................................................
Insurance on factory buildings ..........................................................
Transportation in..................................................................................
Repairs and maintenance ...................................................................
Depreciationfactory equipment ......................................................
Miscellaneous factory overhead ........................................................
Total actual factory overhead ....................................................
$ 17,500
29,050
23,800
7,500
4,000
3,000
6,500
8,250
7,500
9,900
$117,000
(3)
$117,000
115,200
$ 1,800
12-16
P12-6 (Concluded)
(4)
Chapter 12
COLUMBUS COMPANY
Cost of Goods Sold Statement
For January
Materials:
Inventory, January 1 ..........................................
Purchases...........................................................
Less returns to suppliers..................................
Materials available .............................................
Inventory January 31.........................................
Direct labor .....................................................................
Applied factory overhead ..............................................
January manufacturing cost .........................................
Add work in process, January 1 ...................................
Less work in process, January 31 ................................
Cost of goods manufactured ........................................
Add finished goods, January 1 .....................................
Cost of goods available for sale ...................................
Less finished goods, January 31..................................
Cost of goods sold at normal .......................................
Add underapplied factory overhead.............................
Cost of goods sold at actual.........................................
$ 21,000
$108,000
5,050
102,950
$123,950
9,000
$114,950
256,000
115,200
$486,150
32,500
$518,650
32,200
$486,450
18,000
$504,450
68,000
$436,450
1,800
$438,250
Chapter 12
12-17
CASES
C12-1
(1)
High ............................................................
Low ............................................................
Difference ...................................................
Direct Labor
Factory
Hours
Overhead Costs
2,760,000 hours
$34,500,000
2,160,000
29,880,000
600,000 hours
$ 4,620,000
Variable rate = $4,620,000 600,000 hours = $7.70 per direct labor hour
High
$34,500,000
21,252,000
$13,248,000
Low
$29,880,000
16,632,000
$13,248,000
$17,710,000
13,248,000
$30,958,000
(2)