Question 1) Laramie Company has the following inventory balances, in dollars, for the current year:
|
|
Beginning |
Ending |
| Raw Materials |
|
820,000 |
812,000 |
| WIP |
|
135,000 |
146,000 |
| Finished Goods |
|
491,000 |
516,000 |
Materials purchases were $2,544,000 and direct labor was $3,200,000. Overhead is applied at 60% of direct labor.
Required: Compute cost of goods sold for the year.
Question 2) Wheatland Industries has experienced the following electricity costs over recent months:
Required:
| Cost ($) |
Units Produced |
| 28,000 |
15,300 |
| 26,500 |
13,000 |
| 31,400 |
20,000 |
| 27,700 |
14,200 |
| 33,600 |
19,100 |
| 25,800 |
13,900 |
a) Using the hi/lo method, derive a linear equation describing the behavior of electricity cost
b) Using the equation from part a, compute the expected electricity cost at 18,000 units of production
Question 3)
a) Douglas Corporation expects to incur $6,000,000 in factory overhead for the current year. Expected direct labor in the factory is 100,000 hours.
Required: Compute the overhead allocation rate.
b) Douglas is considering adopting an ABC system, with four overhead pools as follows:
|
Cost |
|
Budgeted activity |
|
| Setup |
$2,440,000 |
|
200 |
setups |
|
| Parts |
$1,630,000 |
|
500 |
parts |
|
| Machining |
$1,200,000 |
|
60,000 |
machine hours |
| General o/h |
$730,000 |
|
100,000 |
direct labor hours |
Required: Compute the overhead allocation rate for each cost pool
c) Product X22 is expected to use the following resources in the current year:
| Direct labor hours |
12,000 |
| Machine hours |
6,800 |
| Parts |
45 |
| Setups |
15 |
Required: Compute the amount of overhead allocated to X22 under the traditional method of part a) above, and under the ABC method.
Comment briefly as to why the amounts differ and which method is more accurate? Explain briefly why it is more accurate.