Sports Unlimited
Sports Unlimited makes softballs and baseballs for recreational use. It takes them 2.0 direct labor hours to make a softball and 1.5 direct labor hours to make a baseball. Budgeted production for the upcoming year is 15,000 softballs and 18,000 baseballs. Budgeted fixed overhead is $185,000 with a variable rate of overhead of $3.00 per direct labor hour.
Actual direct labor hours for job #257 is 2,100 direct labor hours. Actual direct labor hours used for the year are 35,080 DLH for softballs and 25,600 DLH for baseballs. Actual manufacturing overhead incurred was $382,500.
Required:
a. Determine the manufacturing overhead rate.
b. Determine the amount of manufacturing overhead applied to job #257.
c. Determine the amount of under/overapplied manufacturing overhead for the year.
d. What effect does the under/overapplied manufacturing overhead have on cost of goods sold and net income for the year?
Reaction Technology
Reaction Technology is experiencing lower than expected performance for the year. The CFO has suggested that they steadily increase inventory volumes for the remainder of the year. What effect does this have on reported earnings? Do you agree with the CFO's suggestion? Why or why not?