ACCT346 Week 2 Homework Assignment
Question 1. The Johnson Company applies a predetermined manufacturing overhead rate based on
direct labor hours to allocate (or charge) manufacturing overhead costs to the many different
production jobs it performs. For the most recent fiscal year, the company originally estimated that it
would incur $750,000 in total manufacturing overhead during the year and that a total of 250,000 direct
labor hours would be worked. After the year was over, the company subsequently determined it had
actually incurred manufacturing overhead costs of $800,000 and 200,000 direct labor hours had been
worked during the year.
Part A. What was the predetermined manufacturing overhead rate that the company originally
calculated and applied to each individual production job throughout the year? Remember that the
company implements this rate based upon direct labor hours, so your answer will be expressed in dollars
per direct labor hour. Please show your calculation.
Part B. What was the total amount of manufacturing overhead that was applied (allocated) to
all of the production jobs that were worked throughout the year? Hint: you’ll need to use the answer
from Part A above along with some of the other given data to help you calculate this.
Part C. At the end of the year, the company was able to calculate, after the fact, how much it
had either under-allocated (under-applied) or over-allocated (over-applied) for its manufacturing
overhead for the year. How much was this amount? Also, be sure to additionally specify whether this
dollar amount was under-allocated or over-allocated. Hint: you’ll need to use the answer from Part B
along with some of the other given data to help you calculate this.
Question 2. The following account balances and amounts for the month of January were obtained from
the general ledger of the Smith Company.
Beginning Work-in-Process (WIP) Inventory Balance
Ending WIP Inventory Balance
Total Direct Material Costs Used in January Production
Total Direct Labor Costs for January Production
$
0
50,000
150,000
70,000
Also note that the Smith Company applies a predetermined manufacturing overhead rate based on
direct labor costs (dollars) to allocate (or charge) manufacturing overhead costs to the many different
production jobs it performs. At the beginning of the year, the company originally budgeted $450,000 of
manufacturing overhead for the year and estimated $150,000 of direct labor costs for the year.
Part A. What was the predetermined manufacturing overhead rate that the company originally
calculated and applied to each individual production job throughout the year? Remember that the
company implements this rate based upon direct labor costs (dollars), so this rate will be expressed as
either a percentage or a multiplier (e.g., 150% or a 1.5 times multiplier). Please show your calculation.
Part B. What was the total amount of manufacturing overhead that was applied (allocated) to
all of the production jobs worked for January? Hint: you can calculate this amount using the result from
Part A above along with the direct labor cost for January.
Part C. Calculate the total manufacturing costs for the month of January. Hint: you’ll need to
use the answer from Part B plus some other data provided above.
Part D. Calculate the Cost of Goods Manufactured (COGM) for the month of January. Hint: you’ll
need to use the answer from Part C plus some other data provided above.
Question 3. The Jones Company manufactures two separate product lines: Segways and Hoverboards.
The annual production and sales of Segways is 800 units, while 2,400 Hoverboards are produced and
sold each year. The company has been using a traditional, fairly simplistic way of allocating (applying) its
total manufacturing overhead costs between the Segway and Hoverboard product lines by simply
apportioning its total overhead expenses based upon the number of direct labor hours worked in the
factory for each of the two separate products.
However, Jones’ management is now looking at the possibility of instead changing to an activity-based
costing (ABC) approach for its products. To implement activity-based costing, the company has identified
three major cost pools comprising its manufacturing overhead: production line set-up costs, clean-up
costs, and tear-down costs. The following data table was compiled for these cost pools to summarize the
estimated activity and associated expense amounts for the total annual overhead:
Expected Activity
Activity Cost Pool
Production line set-up costs
Production line clean-up costs
Production line tear-down costs
Total
Overhead
Cost
$52,000
$19,500
$6,500
Segways
(# of “events”)
Hoverboards
(# of “events”)
Total
(# of “events”)
600
150
600
2,000
500
2,000
2,600
650
2,600
Note that there are three parts to this question and it extends onto the next page.
Part A. Using the table of estimates provided above for the anticipated activities related to overhead,
calculate the activity rate for each of the three cost pools. In other words, you will calculate three
different answers: the average cost (dollars) for each “set-up event,” cost for each “clean-up event,” and
cost for each “tear-down event.”
Part B. Specifically for the Hoverboards, what is the total activity-based cost for each of the three
individual activity cost pools: the set-ups, clean-ups, and tear-downs? Show the calculation for each of
these three activity totals. Hint: you’ll need to use results from Part A plus other data from the table.
Part C. Specifically for the Hoverboards, what are the annual total overhead costs based upon the
activity-based costing analysis? Also, what is the overhead cost per unit (for Hoverboards)? Hint: you’ll
need to use the results from Part B along with some other given data, and simply assume that the total
overhead costs are comprised of the total set-up costs, clean-up costs, and tear-down costs.
