Questions -
Q1. Booth Financial Services, LLC has two revenue producing departments, Financial Planning and Business Consulting. The accounting department is trying to determine the best method to allocate $1,000,000 of common costs (secretarial staff, reception personnel, etc), either by salary or number of employees. Information on the revenue departments are as follows:
Department
Financial Planning 50 Employees
Business Consulting 150 Employees $5,000,000
(a) Allocate the $1,000,000 common costs to the two revenue departments using both methods.
(b) Why are allocations called arbitrary?
Q2. Gina's Boutique makes custom jewelry. One item, the guru necklace, is a best seller and sales in units for the first quarter are as follows:
January 100,000 units
February 150,000 units
March 180,000 units
Desired ending inventory is budgeted at 20% of next month sales. Compute production for February.
Q3. Acme Fireworks uses a traditional overhead allocation based on direct labor hours. For the current year overhead is estimated at $1,000,000 and direct labor hours are budgeted at 200,000 hours. Actual hours worked were 195,000 and actual overhead was $978,000.
Compute the predetermined manufacturing overhead rate.
Compute the applied manufacturing overhead.