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CHAPTER 3

Product Costing and Cost Accumulation in a


Batch Production Environment
EXERCISE 3-37 (10 MINUTES)
Budgeted overhead rate = budgeted overhead / budgeted direct professional labor
170% = 510,000 euros / 300,000 euros
Contract to redecor
a
t
ema
y
or

sof
f
i
c
e
s
:
Direct material............................................................................................................ 4,100 euros
Direct professional labor........................................................................................... 7,000 euros
Overhead (170% 7,000 euros)................................................................................ 11,900 euros
Total contract cost................................................................................................ 23,000 euros

PROBLEM 3-60 (50 MINUTES)


1.

Schedule of budgeted overhead costs:


Department A
Variable overhead
A 21,000

$17.......................................................
B 21,000

$
5........................................................
Fixed overhead.............................................................
Total overhead..............................................................

Department B

$357,000
210,000
$567,000

Grand total of budgeted overhead (A + B):

$105,000
210,000
$315,000

$882,000

total budgeted overhead rate


total budgeted direct - labor hours
$882,000

$21per hour
42,000

Predetermined overhead rate

2.

Product prices:

Total cost .....................................................................


Markup, 10% of cost....................................................
Price .............................................................................
3.

Basic
System
$1,190
119
$1,309

Advanced
System
$1,640
164
$1,804

Department A

Department B

$567,000
21,000

$315,000
21,000

$567,000
21,000

$315,000
21,000

$27 per
direct-labor
hour

$15 per
direct-labor
hour

Departmental overhead rates:


Budgeted overhead
(from requirement 1) ...............................................
Budgeted direct-labor hours ......................................
Predetermined overhead rates...................................

McGraw-Hill/Irwin
3-2

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 3-60 (CONTINUED)


4.

Revised product costs:

Direct material .............................................................


Direct labor ..................................................................
Manufacturing overhead:
Department A:
Basic system 5

$27........................................
Advanced system 15

$27 ..............................
Department B:
Basic system 15

$15......................................
Advanced system 5

$15 ................................
Total
5.

Basic
System
$ 450
320

Advanced
System
$ 900
320

135
405
225
_ ____
$1,130

75
$1,700

Basic
System
$1,130
113
$1,243

Advanced
System
$1,700
170
$1,870

Revised product prices:

Total cost .....................................................................


Markup, 10% of cost....................................................
Price ............................................................................

PROBLEM 3-61 (30 MINUTES)


1.

Cost rates per unit of each cost driver.


(a)

Activity
Machine setup.........
Material
receiving ...............
Inspection................
Machinery-related ...
Engineering .............
Total overhead ........
2.

(b)
Activity
Cost Pool
$102,000
80,000
80,000
480,000
140,000
$882,000

(c)
Quantity of
Cost Driver
200 setups
80,000
1,600
60,000
7,000

lbs.
$1.00 per lb.
inspections
$50 per inspection
machine hrs.
$8 per machine hr.
engineering hrs. $20 per engineering hr

Overhead assigned to each product line:

Overhead Assigned to
Activity
Basic System Line
Machine setup.................
$ 22,950 (45 setups

$510)
Material receiving ...........30,000 (30,000 lbs.

$1.00)
Inspection........................34,500 (690 inspections

$50)
Machinery-related ...........
160,000 (20,000 machine hrs.

$8)
Engineering .....................56,000 (2,800 eng. hrs.

$20)
Total overhead ................
$303,450
3.

(b) (c)
Cost Rate per Unit
of Cost Driver
$510 per setup

Overhead Assigned to
Advanced System Line
$ 79,050 (155 setups

$510)
50,000 (50,000 lbs.

$1.00)
45,500 (910 inspections

$50)
320,000 (40,000 machine hrs.

$8)
84,000 (4,200 eng hrs.

$20)
$578,550

Overhead assigned per unit of each type of printer


Basic system ..............................................................$303.45 ($303,450 1,000 units)
Advanced system.......................................................$578.55 ($578,550 1,000 units)

McGraw-Hill/Irwin
3-4

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 3-61 (CONTINUED)


4.

Comparison of total product cost assigned to each product under three alternative
product costing systems:

Plantwide overhead rate*......................................


Departmental overhead rate** ..............................
Activity-based costing.........................................

Basic
System
$1,190.00
1,130.00
1,073.45

Advanced
System
$1,640.00
1,700.00
1,798.55

*From the data given in the preceding problem.


**From the solution to the preceding problem.

The

assigned overhead as calculated in requirement (3) above, plus the direct


material and direct-labor costs given in the data for the preceding problem:
Basic system ........................................................ $1,073.45 = $770.00 + $303.45
Advanced system ................................................ $1,798.55 = $1,220.00 + $578.55