Harris company manufactures and sells a single product

Exercise 4-8 Computing Predetermined Overhead Rates and Job Costs [LO4-1, LO4-2, LO4-3, LO4-4]

Kody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Machine-hours required to support estimated production

154,000

Fixed manufacturing overhead cost

$

659,000

Variable manufacturing overhead cost per machine-hour

$

4.80

Required:

1. Compute the predetermined overhead rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Predetermined overhead rate ______ Per MH

2. During the year Job 500 was started and completed. The following information was available with respect to this job:

Direct materials requisitioned

$

340

Direct labor cost

$

260

Machine-hours used

40

Compute the total manufacturing cost assigned to Job 500. (Round your intermediate calculations and final answer to 2 decimal places.)

Total manufacturing cost______

3-a. During the year the company worked a total of 145,100 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,319,508. What is the amount of underapplied or overapplied overhead for the year? (Round your intermediate calculations to 2 decimal places.)

Manufacturing overhead cost______ by_________

3-b. If this amount were closed out entirely to Cost of Goods Sold, would net operating income increase or decrease?

Increase

Decrease

2.

Problem 2-25 Cost Classification and Cost Behavior [LO2-1, LO2-2, LO2-3, LO2-4]

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,100 sets per year. Annual cost data at full capacity follow:

Direct labor

$

95,000

Advertising

$

99,000

Factory supervision

$

72,000

Property taxes, factory building

$

17,000

Sales commissions

$

61,000

Insurance, factory

$

7,000

Depreciation, administrative office equipment

$

2,000

Lease cost, factory equipment

$

17,000

Indirect materials, factory

$

18,000

Depreciation, factory building

$

107,000

Administrative office supplies (billing)

$

4,000

Administrative office salaries

$

105,000

Direct materials used (wood, bolts, etc.)

$

434,000

Utilities, factory

$

49,000

Required:

1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) (If your answer is zero, leave the cell blank.)

2. Compute the average product cost of one patio set. (Round your answer to nearest whole dollar.)

average product cost_____perset

3. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged?

Increase

Decrease

Remain unchanged

3.

Problem 3-22 Basics of CVP Analysis; Cost Structure [LO 3-1, LO 3-3, LO 3-4, LO 3-5, LO 3-6]

Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:

Sales (13,000 units × $40 per unit)

$

520,000

Variable expenses

260,000

Contribution margin

260,000

Fixed expenses

290,000

Net operating loss

$

(30,000)

Required:

1. Compute the company’s CM ratio and its break-even point in both unit sales and dollar sales.

Cm ratio _________

Break even points in units________ ,____%

Break even point in dollars______,______%

2. The president believes that a $6,300 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

_______by__________

3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $30,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?

Contribution income statement

__________ -__________

__________-_________

_________-________

________-_________

________-__________

4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by $0.70 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,100? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Sales units_______

5. Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $57,000 each month.

a. Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. (Use the CM ratio to calculate your break-even point in dollars. Round your final answers to the nearest whole number.)

Cm ratio___________

Break even points in units______ . _____%

Break even points in dollars_______ , _____%

b. Assume that the company expects to sell 20,900 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.

PEM INC

Contribution income statment

Not automated auto mated

Total per unit % total perunit %

________ _____ ______ __ ____ ___ __

_________ --------- _______ __ _____ __ __

____ ______ _______ ___ ______ __ __

--------- ---------- _______ ___ _____ __ __

-------- ----------- ______ ___ _____ ___ __

· Administrative expenses

· Advertising

· Beginning merchandise inventory

· Commissions

c. Would you recommend that the company automate its operations?

Yes

No

4.

Exercise 2-10 Cost Behavior; Contribution Format Income Statement [LO2-4, LO2-6]

Harris Company manufactures and sells a single product.

Required:

1. A partially completed schedule of the company’s total and per unit costs over the relevant range of 70,000 to 110,000 units produced and sold annually is given below: Complete the schedule of the company’s total and unit costs. Round the variable cost and fixed cost to 2 decimal places.)

Units produced and sold

70,000 90,000, 110,0000

Total Cost

Variable costs $ 147,000 _______ ________

Fixed Costs 470,00 ______ _________

Total Costs $617,00

Cost per unit

Variable cost ________ _______ ________

Fixed cost _________ ________ ______

Total cost per unit

2. Assume that the company produces and sells 100,000 units during the year at a selling price of $8.32 per unit. Prepare a contribution format income statement for the year. (Do not round intermediate calculations.)

Harris Company

Contribution format statement\

_______ ________

________ ________

_________ _________

_________ ________

_________ _________

· Administrative expenses

· Beginning merchandise inventory

· Cost of goods sold

· Direct labor