Problem 18-1

a.
Overhead
rate
=
135000
= $1.50 per direct labor dollar


90000


b. Work in process inventory

22,500


Raw materials inventory

6,000

Direct Labor

6,600

Production overhead (6,600 x $1.50)

9,900

c. Production overhead (6,600 x $1.50) 9,900


Actual Overhead

9,550


Overabsorbed

350

Problem 18-2




Distribution Cost Center Distribution Cost Center Distribution Cost Center
Ratio A Ratio B Ratio C Total
Heat, light, power 60% 24000 20% 8000 20% 8000 40000
Depreciation:





Building 80% 2400 10% 300 10% 300 3000

Furniture and Fixtures 0 75% 600 25% 200 800

Machinery and Equipment 100% 20000 0 0 20000
Insurance:





Inventories 50% 100 50% 100 0 200

Building 80% 1040 10% 130 10% 130 1300

Furniture and Fixtures 0 75% 45 25% 15 60

Machinery and Equipment 100% 850 0 0 850
Building Repairs 80% 3200 10% 400 10% 400 4000
Machinery Repairs 100% 1900 0 0 1900
Telephone Expense 20% 360 60% 1080 20% 360 1800
Total cost allocated to each cost center

$53,850

$10,655

$9,405

Problem 18-3



a.


Service Centers Instruction Centers

Bldg & Allocation Central Allocation Arts & Allocation Allocation Bus.
Grounds Ratio Admin Ratio Science Ratio Education Ratio Admin
Overhead costs 1575

1050

3150

2625

2100
Building and grounds allocation -1575 16.67% 262 33.33% 525 27.78% 438 22.22% 350
Central admin allocation -1312 40.00% 525 24.00% 315 36.00% 472
Overhead 0 0 $4,200 $3,378 $2,922


b.

Arts & Science Education Business Administration

Overhead Costs

4,200

3,378

2,922

Number of students 6,000 2,500 1,500

Overhead Costs/ Number of student $0.70

$1.35

$1.95

Problem 18-4


a. Actual overhead

*a typical case requires 1 direct labor hour


Busy Season =
180000
=
$12 per
hour


15000



Slack Season =
80000
=
$16 per
hour


5000


Factory overhead cost for inventory at December 31 is

25,000 cases x $12 = $300,000



b. Predetermined overhead

*a typical case requires 1 direct labor hour

Total factory overhead costs

$180000 x 6 months

1080000

$80000 x 6 months

480000


Total

$1,560,000


Total direct labor hours

15000 x 6 months

90000

5000 x 6 months

30000


Total

120,000


Predetermined overhead rate per case is

$1,560,000/120000 hours = $13 per hour


Factory overhead component for inventory would be

25,000 cases x $13 = $325,000


c. Since the same product type is packed all throughout the year,

it would be more rational to use a predetermined overhead

rate which is the $13.

Problem 18-5


a. Allocating SG&A to respective Activities in ($000)


Customer
Take
phone/ Take field Spec Neg-
Process
Cust.

Mailing Net order order Field order Invoice Other

Marketing and 600 600 1800 3000

Sales Support

Design 810 90

Information 200 200 1600

Systems

General 300 300 2400

Administration

Total 600 800 1800 4110 500 4090


Allocating Activities to respective channels


in ($000)


Channels
Dist. Ratio Catalog Dist. Ratio Corporate Dist. Ratio Retail
Customer mailings 98% 588 1% 6 1% 6
Number of phone orders 97% 776 1% 8 2% 16
Number of field orders 50% 900 50% 900
Number of field orders 75% 3082.5 25% 1027.5
requiring spec. neg.
Process Cust. Invoice 77% 385 11% 55 12% 60
Total SG&A allocation per Channel 1749

4051.5

2009.5

Calculating profitability


in ($000)

Catalog Corporate Retail

Sales 30000 10000 20000

Cost of Sales

15000 6500 14000

Allocation of SG&A 1749 4051.5 2009.5

Total dollar return per channel 13251 -551.5 3990.5


Return on sales = NI/Sales 44.17% -5.52% 19.95%


b. These numbers imply that if the SG&A expenses were to be allocated according to their respective

distribution channels, the corporate distribution channel is not really as profitable as they previously

thought. In fact the corporate distribution channel actually have a negative return on sale which

means that it incurred an operating loss instead of a profit.