Khan Academy: Innovative Or Traditional?
December 29, 2017
Briefing Cases
December 29, 2017

Question
1. Biltz Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. The company estimated that it would incur $525,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked.

By how much was manufacturing overhead overallocated or underallocated for the year?

  1. The following account balances at the beginning of January were selected from the general ledger of Ocean City Manufacturing Company:

Work-in-process inventory $0
Raw materials inventory $28,000
Finished goods inventory $40,000

Additional data:

1) Actual manufacturing overhead for January amounted to $62,000.
2) Total direct labor cost for January was $63,000.
3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $250,000 of direct labor cost and $350,000 of manufacturing overhead costs.
4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $5,200 (800 direct labor hours) and total direct material charges were $14,000.
5) Cost of direct materials placed in production during January totaled $123,000. There were no indirect material requisitions during January.
6) January 31 balance in raw materials inventory was $35,000.
7) Finished goods inventory balance on January 31 was $34,500.

What is the cost of goods manufactured for January? Show your work for full credit.

  1. Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:

3a. What is the predetermined overhead allocation rate using the traditional costing system?

3b. What is the overhead cost per skateboard using an activity-based costing system?

 

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