- What is the company's predetermined overhead rate per direct labor hour?
Answer: $12.00
This multi-step problem requires calculating the total budgeted overhead and dividing it by the total budgeted direct labor hours, even though part of the overhead is driven by machine hours.
1. Calculate total budgeted overhead: The problem states this is $960,000.
2. Calculate the allocation base (total direct labor hours):
100,000 units 0.8 direct labor hours/unit = 80,000 direct labor hours.
3. Calculate the predetermined overhead rate:
* Total Budgeted Overhead / Total Budgeted Allocation Base
* $960,000 / 80,000 direct labor hours = $12.00 per direct labor hour.
The fact that variable overhead is driven by machine hours is relevant for calculating the total overhead amount, but since that total is given, the driver detail is only there to potentially confuse the test-taker into using machine hours as the denominator.
- What is the total budgeted direct labor cost for July?
Answer: $294,000
The labor cost must be calculated by separating standard hours from overtime hours.
1. Identify standard and overtime hours:
* Total hours needed: 9,200
* Standard hours capacity: 8,000 hours
* Overtime hours: 9,200 - 8,000 = 1,200 hours
2. Calculate the overtime wage rate:
Standard rate 150% = $30 * 1.5 = $45 per hour
3. Calculate the cost for standard hours:
8,000 hours $30/hour = $240,000
4. Calculate the cost for overtime hours:
1,200 hours $45/hour = $54,000
5. Calculate the total direct labor cost:
* $240,000 (standard) + $54,000 (overtime) = $294,000.
- What are the total budgeted cash disbursements for manufacturing overhead for the year?
Answer: $1,095,000
The question asks for cash disbursements, which means non-cash expenses like depreciation must be excluded from the total budgeted overhead cost.
1. Calculate total variable overhead: 150,000 direct labor hours * $3.50/hour = $525,000. This is a cash cost.
2. Calculate total fixed overhead: The budget is $650,000.
3. Identify non-cash fixed overhead: Depreciation is $80,000.
4. Calculate cash portion of fixed overhead: $650,000 - $80,000 = $570,000.
5. Calculate total cash disbursements for overhead: Total Variable OH ($525,000) + Cash Fixed OH ($570,000) = $1,095,000.
- What is the total budgeted manufacturing cost per unit?
Answer: $72.50
The total budgeted manufacturing cost per unit is the sum of direct materials, direct labor, and manufacturing overhead per unit.
1. Calculate Direct Material cost per unit:
2 pounds/unit $10/pound = $20.00 per unit.
2. Calculate Direct Labor cost per unit:
1.5 DLH/unit $20/DLH = $30.00 per unit.
3. Calculate Manufacturing Overhead cost per unit:
* The overhead rate is given per DLH. We need to find the overhead applied per product unit.
1.5 DLH/unit $15/DLH = $22.50 per unit.
4. Sum the costs to find the total manufacturing cost per unit:
* Total Cost = DM + DL + MOH
* Total Cost = $20.00 + $30.00 + $22.50 = $72.50 per unit.
- For the month of June, a company budgeted to use 40,000 gallons of direct material in production. The standard cost is $12 per gallon. At the end of June, the actual ending inventory was 6,000 gallons. The total cost of materials purchased in June was $468,000. What was the beginning inventory of direct materials in gallons?
Answer: 7,000 gallons
This problem requires working backward from the cost of purchases to the beginning inventory in units.
1. Calculate the quantity of materials purchased in June:
* Total Purchase Cost / Cost per Gallon = Gallons Purchased
* $468,000 / $12 per gallon = 39,000 gallons.
2. Use the materials inventory formula to solve for beginning inventory:
* The basic inventory formula is: Beginning Inventory + Purchases = Materials Used + Ending Inventory.
* Rearranging to solve for Beginning Inventory: Beginning Inventory = Materials Used + Ending Inventory - Purchases.
3. Substitute the known values into the formula:
* Beginning Inventory = 40,000 gallons (Used) + 6,000 gallons (Ending) - 39,000 gallons (Purchased).
* Beginning Inventory = 7,000 gallons.
- What is the total budgeted direct labor cost for the first quarter?
Answer: $834,000
The direct labor cost must be calculated separately for the periods before and after the wage increase.
1. Calculate labor hours for Jan and Feb (at $24/hr):
January Hours: 20,000 units 0.5 hr/unit = 10,000 hours
February Hours: 22,000 units 0.5 hr/unit = 11,000 hours
* Total hours at old rate: 10,000 + 11,000 = 21,000 hours
Cost for Jan-Feb: 21,000 hours $24/hr = $504,000
2. Calculate labor hours for March (at $26/hr):
March Hours: 25,000 units 0.5 hr/unit = 12,500 hours
Cost for March: 12,500 hours $26/hr = $330,000
3. Calculate total quarter cost:
* Total Cost = $504,000 + $330,000 = $834,000.
- What is the amount of cost that should be allocated to the direct labor budget for October?
Answer: $40,600
The direct labor budget should reflect the cost of hours actually worked on production. The cost of idle time (guaranteed hours paid minus hours worked) is typically treated as manufacturing overhead.
1. Calculate hours worked on production: 1,450 hours.
2. Calculate the direct labor cost: This is the cost of the hours worked.
1,450 hours $28/hour = $40,600.
3. Analyze the idle time (for context):
* Guaranteed hours: 1,600
* Worked hours: 1,450
* Idle hours: 1,600 - 1,450 = 150 hours.
Cost of idle time (to be budgeted as MOH): 150 hours $28/hour = $4,200.
- What is the total budgeted cost of component purchases for the quarter in U.S. dollars?
Answer: $100,000
The budget should be based on the best available estimate for future costs, which is the forecasted exchange rate.
1. Calculate the total purchase cost in the foreign currency (Japanese Yen):
10,000 components ¥1,500/component = ¥15,000,000
2. Convert the total cost to the home currency (U.S. Dollars) using the forecasted exchange rate:
* Total Cost in USD = Total Cost in JPY / Exchange Rate (JPY per USD)
* Total Cost in USD = ¥15,000,000 / 150 = $100,000.
- What is the total budgeted direct labor cost for the period?
Answer: $280,000
The total direct labor cost is the sum of the costs for each department, calculated based on the budgeted production level.
1. Calculate the total labor cost for the Cutting department:
Total Hours: 8,000 chairs 0.75 hours/chair = 6,000 hours
Total Cost: 6,000 hours $20/hour = $120,000
2. Calculate the total labor cost for the Assembly department:
Total Hours: 8,000 chairs 1.25 hours/chair = 10,000 hours
Total Cost: 10,000 hours $16/hour = $160,000
3. Sum the costs from both departments:
* Total Direct Labor Cost = $120,000 + $160,000 = $280,000.
- Cosmos Industries uses a standard costing system and is preparing its overhead budget. The company has the following overhead cost structure: variable overhead of $6.80 per direct labor hour and fixed overhead of $240,000 per quarter. Normal capacity is 15,000 direct labor hours per quarter. During the current quarter, the company actually worked 14,200 direct labor hours and incurred actual overhead costs of $335,600. If the company uses normal capacity to set its predetermined overhead rate, what is the volume variance for the quarter?
Answer: $12,800 unfavorable
Volume variance measures the difference between budgeted fixed overhead and applied fixed overhead based on standard hours allowed. First, calculate the predetermined overhead rate: Variable rate = $6.80 per hour; Fixed rate = $240,000 ÷ 15,000 hours = $16.00 per hour; Total predetermined rate = $6.80 + $16.00 = $22.80 per hour. The volume variance only relates to fixed overhead. Applied fixed overhead = 14,200 actual hours × $16.00 = $227,200. Budgeted fixed overhead = $240,000. Volume variance = Budgeted fixed overhead - Applied fixed overhead = $240,000 - $227,200 = $12,800 unfavorable. The variance is unfavorable because actual hours (14,200) were less than normal capacity (15,000), meaning less fixed overhead was applied than budgeted. Choice B is wrong because it shows the variance as favorable. Choices C and D use $8,560, which might result from an error in calculating the fixed overhead rate or using variable overhead in the calculation.
- What is the difference in total budgeted prime costs between Method A and Method B?
Answer: $10,000
Prime cost is the sum of direct materials and direct labor. The question asks for the difference in total prime costs for the entire production run.
1. Calculate Prime Cost for Method A:
DM Cost per unit: 2 lbs $10/lb = $20
DL Cost per unit: 1.5 hrs $20/hr = $30
* Total Prime Cost per unit (A): $20 + $30 = $50
Total Prime Cost for 10,000 units (A): 10,000 $50 = $500,000
2. Calculate Prime Cost for Method B:
DM Cost per unit: 2.5 lbs $10/lb = $25
DL Cost per unit: 1.2 hrs $20/hr = $24
* Total Prime Cost per unit (B): $25 + $24 = $49
Total Prime Cost for 10,000 units (B): 10,000 $49 = $490,000
3. Calculate the difference:
* $500,000 (A) - $490,000 (B) = $10,000.
- What is the total budgeted direct labor cost for the year?
Answer: $360,000
This problem requires isolating the variable overhead component and then using the given rate to solve for the direct labor cost.
1. Calculate total budgeted variable overhead:
* Total MOH = Fixed MOH + Variable MOH
* $700,000 = $250,000 + Variable MOH
* Variable MOH = $700,000 - $250,000 = $450,000.
2. Use the variable overhead rate to find direct labor cost:
Variable MOH = 125% Direct Labor Cost
$450,000 = 1.25 Direct Labor Cost
* Direct Labor Cost = $450,000 / 1.25 = $360,000.
- What is the total budgeted cost of raw material purchases?
Answer: $25,000
This problem requires calculating the gross amount of material needed before spoilage.
1. Determine the relationship between input and output: The 4 kg per finished unit represents the good material, which is 80% (100% - 20% spoilage) of the total material input.
2. Calculate the gross material input per finished unit:
* Gross Input = Good Output / (1 - Spoilage Rate)
* Gross Input = 4 kg / (1 - 0.20) = 4 kg / 0.80 = 5 kg.
3. Calculate total material needed for production:
1,000 units 5 kg/unit = 5,000 kg.
4. Calculate total purchase cost: Since there are no inventories, purchases equal the amount needed for production.
5,000 kg $5/kg = $25,000.
- How many pounds of raw material were used in production during March?
Answer: 10,500 pounds
This is a three-step problem that requires working from cash payments back to material usage.
1. Calculate total purchases for March: Use the Accounts Payable balance to convert cash payments to purchases.
* Purchases = Cash Payments + Change in A/P
* Purchases = $120,000 + ($15,000 End A/P - $18,000 Beg A/P) = $120,000 - $3,000 = $117,000.
2. Convert purchase cost to units (pounds):
* Pounds Purchased = $117,000 / $10 per pound = 11,700 pounds.
3. Calculate units used in production: Use the raw material inventory formula.
* Usage = Beginning Inventory + Purchases - Ending Inventory
* Usage = 5,000 pounds + 11,700 pounds - 6,200 pounds = 10,500 pounds.
- What is the effect of this policy change on the budgeted cost of purchases for July?
Answer: $30,000 decrease
The change in inventory policy directly impacts the desired ending inventory for July, which in turn changes the budgeted purchases for July. The beginning inventory for July is unaffected by this policy change as it is based on the old policy.
1. Calculate the old desired ending inventory for July:
Based on August needs: 20% 50,000 pounds = 10,000 pounds.
2. Calculate the new desired ending inventory for July:
Based on August needs: 5% 50,000 pounds = 2,500 pounds.
3. Calculate the change in ending inventory units:
* Change = 10,000 pounds (old) - 2,500 pounds (new) = 7,500 pounds decrease.
4. Calculate the effect on the cost of purchases: A decrease in the desired ending inventory will cause an equal decrease in the number of units that need to be purchased.
Effect on Cost = 7,500 pounds $4/pound = $30,000 decrease.
- What is the total budgeted manufacturing overhead for the month?
Answer: $170,000
The total overhead is the sum of the fixed costs and all variable costs, where each variable cost is calculated using its own specific cost driver.
1. Calculate the variable MOH from indirect materials:
25,000 DLH $2.00/DLH = $50,000
2. Calculate the variable MOH from factory power:
40,000 MH $0.50/MH = $20,000
3. Calculate the total budgeted MOH:
* Total MOH = Fixed MOH + Variable MOH (materials) + Variable MOH (power)
* Total MOH = $100,000 + $50,000 + $20,000 = $170,000.
- What is the total budgeted manufacturing overhead for the month?
Answer: $83,500
This problem involves a stepped fixed cost. The correct level of fixed cost must be chosen based on the budgeted activity level before calculating the total overhead.
1. Determine the relevant activity level: The budgeted activity is 9,500 machine hours.
2. Identify the corresponding fixed cost: Since 9,500 hours is outside the 5,000-9,000 range, the higher fixed cost of $55,000 applies.
3. Calculate total variable overhead: 9,500 machine hours * $3/hour = $28,500.
4. Calculate total budgeted manufacturing overhead:
* Variable OH ($28,500) + Fixed OH ($55,000) = $83,500.
