Accounting Exercises

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# ACC/561 Exercise 15-5,16-1, 17-1

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1. Exercise 15-5

Dugan Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total \$339,300 for the year, and machine usage is estimated at 125,700 hours.

For the year, \$358,964 of overhead costs are incurred and 131,100 hours are used.

a) Compute the Manufacturing Overhead rate per machine hour

b) What is the amount of Overhead under-applied?

c) Prepare an adjusting entry to assign the under or over applied overhead for the year to Cost of Goods Sold.

2. Exercise 16-3

The ledger of Custer Company has the following work in process account.

Work in Process—Painting

5/1 Balance 4,790 5/31 Transferred out?

5/31 Materials 7,200

5/31 Labor 3,370

5/31 Balance ?

Production record shows that there were 580 units in the beginning inventory, 30% complete, 1,600 units started, and 1530 units transferred out. The beginning work in process had materials cost of \$3,140 and conversion costs of \$1,650. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.

a) How many units are in process at May 31?

b) What is the material cost for May?

c) What is the unit conversion cost for May?

d) What is the Total cost of units transferred out in May?

e) What is the cost of the May 31 inventory/Work in Process?

3. Exercise 17-1

Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine set-up. Presented below is information related to the company’s operations.

Standard Custom

Direct labor costs \$45,000 \$97,500

Machine hours 1,430 1,350

Setup hours 98 390

Total estimated overhead cost are \$307,700. Overhead cost allocated to the machining activity cost pool is \$196,600, and \$111,100 is allocated to the machine setup pool.

1. Compute the overhead rate using the traditional (Plantwide) approach? (Round answers to 2 decimal places, e.g. 12.25)

2. Predetermined overhead rate % of Direct Labor cost?

3. Overhead allocated to Machining activity cost pool?

4. Compute the Overhead rates using the activity-based costing approach. (Round answers to 2 decimals places, e.g. \$12.25.)

Machining ---------------? Setup----------------?

5. Determine the difference in allocation between the two approaches:

Activity-based-costing: Standard: --------------? Custom:----------------?

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Cornell University
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