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Company XYZ attempting to determine costs associated with various jobs. Current production records show the following information for two recent jobs:

Job 1 Job 2
Direct materials costs \$15,600 \$31,200
Direct labor costs:
Assembly Department \$ 3,900 \$ 5,200
Cutting Department \$10,400 \$ 2,600
Machine hours used in the
Assembly Department 200 600
Units completed 150 200

Assume overhead application rates of \$16 per machine hour for the Assembly Department and 150 percent of direct labor costs (dollars) for the Cutting Department.

Required:

a. What are the total overhead costs applied to Job 1?
b. What is the total cost associated with Job 2?

A company manufactures two products: A and B. The overhead costs have been divided into four overhead pools that use the following cost drivers:

Number
Number Number of Labor Labor
Product of Orders of Setups Transactions Hours
X 60 20 50 2,000
Y 20 80 70 500
Cost per pool: \$16,000 \$13,000 \$2,400 \$20,000

Required:

a. Assign overhead costs to products X and Y using a direct labor hours basis.
b. Assign overhead costs to products X and Y using activity-based costing.

TCK sells all of its output to the Final Product Division of the company. The only product of the Components Division is a remote control shell used by the Final Product Division. If bought from outside, the retail price would be \$2 per shell. Each remote control completed by the Final Product Division requires one shell. Production quantity and cost data for the year are as follows:

Remote control shells 10,000 shells
Direct materials \$3,000
Direct labor \$2,000
Factory overhead (25 percent is variable) \$2,000
Administrative expenses (20 percent is variable) \$2,500

Required: Compute the transfer price per unit for a remote control shell using

a. Market price.
b. Variable product costs plus 20 percent.
c. Absorption costs plus 20 percent.

#### Solution Preview

Company XYZ is attempting to determine costs associated with various jobs. Current production records show the following information for two recent jobs:

Job 1 Job 2
Direct materials costs \$15,600 \$31,200
Direct labor costs:
Assembly Department \$ 3,900 \$ 5,200
Cutting Department \$10,400 \$ 2,600
Machine hours used in the
Assembly Department 200 600
Units completed 150 200

Assume overhead application rates of \$16 per machine hour for the Assembly Department and 150 percent of direct labor costs (dollars) for the Cutting Department.

Required:

a. What are the total overhead costs applied to Job 1?

The overhead applied in Assembly Department is 200X16 = \$3,200 (based on machine hours)
Overhead applied in Cutting Department is 10,400X150% = \$15,600 (based on direct labor costs)