Question No. 1: Medusa products use a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that 85,000 machine-hours would be required for the period's estimated level of production. The company also estimated $106,250 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $0.75 per machine-hour.
Required:
Compute the company's predetermined overhead rate
Assume that during the year the company actually works only 80,000 machine-hours and incurs the following costs in the Manufacturing Overhead and Work in Process accounts:
Manufacturing Overhead Work in Process
$ $
Utilities 14,000 ?
Insurance 9,000
Maintenance 33,000
Ind. Materials 7,000
Ind. Labor 65,000
Depreciation 40,000
Dir. Materials 530,000
Dir. Labor 85,000
Overheads ?
Copy the data in the T-accounts above onto your answer sheet. Compute the amount of over-head cost that would be applied to Work in Process for the year, and make the entry in your T-accounts.
Compute the amount of under applied or over applied overhead for the year, and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close out the balance in this account to Cost of Goods Sold.
Explain why the manufacturing overhead was under applied or over applied for the year.
Question No. 2: Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $60 per unit and has a CM ratio of 40%. The company's fixed expenses are $360,000 per year. The company plans to sell 17,000 bookbags this year.
1. What are the variable expenses per unit?
2. Using the equation method:
a. What is the break-even point in units and in sales dollars?
b. What sales level in units and in sales dollars is required to earn an annual profit of $90,000?
c. Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $3 per unit. What is the company's new break-even point in units and in sales dollars?
3. Repeat (2) above using the formula method.