Problem 1) After its facilities were automated, Flame Metal Works was able to reduce labor hours for Product A by 3,000 hours. Before automation, Product A consumed 8,000 labor hours. Product B was not affected by the automation and continued to consume 7,000 labor hours. Automation increased total overhead from $30,000 $36,000.
Which of the following choices would be true about the amount of overhead allocation if labor hours were used as the company-wide allocation base?
Product Before Automation After Automation
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a. A $24,000 $15,000
b. B $14,000 $14,000
c. B $21,000 $14,000
d. A $16,000 $15,000
a. Insert Table
b. insert table
c. insert table
d. Insert table
Problem 2) Which are the following statements is true concerning the amount of overhead allocation if the company continues to use direct labor hours as cost driver?
a. After automation, Product A is under costed.
b. After automation, Product A is over costed.
c. After automation, Product B is over costed.
d. Both a and c.
Problem 3) ABC Company budgeted the following transactions from May 2003:
Sales (60% collected in month of sale) $180,000
Cash Operating Expenses $105,000
Cash Purchases of Capital Investments $50,000
Cash Repayment on Note Payable $40,000
Depreciation on Equipment $25,000
There was a $35,000 beginning cash balance. Sales for April were $75,000 and 40% expected to be collected in the month following the sales. The company desires to have a $20,000 and the cash balance. Determine the amount of cash coverage or shortage.
a. $42,000 shortage.
b. $23,000 overage.
c. $22,000 shortage.
d. $43,000 overage.