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Overhead costs/ Transfer price

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)
Total overhead applied = $18,800

b. What is the total cost associated with Job 2?

In order to find the total cost, we need to calculate the overhead applied
The overhead applied in Assembly Department is 600X16 = $9,600 (based ...

Solution Summary

The solution explains how to calculate the overhead costs and determine the transfer price

$2.19